On Oct. 8, the US Department of Justice released its remedy framework for the Google Search antitrust case against Alphabet GOOGL/GOOG, which included a slew of structural, contractual, and data-related remedies. While the final proposal will be filed on Nov. 20, this filing provides a flavor of what’s to come.
• Fair Value Estimate: $209
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
Why it matters: This is arguably the most material antitrust case of the three that Alphabet faces. Remedies could potentially affect Alphabet’s cash engine, Google Search. As part of its remedy framework, the DOJ included the divestiture of Chrome and Android—a highly unlikely outcome. We remind investors that to impose a breakup, the DOJ has to prove other remedies won’t work by themselves. Beyond a breakup, we believe there will likely be restrictions on Alphabet’s exclusive agreements with companies like Apple AAPL and Samsung, both in the DOJ proposal and in the eventual judgment by US District Judge Amit Mehta. We don’t view this outcome as materially value-destructive for Alphabet.
The bottom line: We maintain our fair value estimate of $209 per share for Alphabet and continue to view the firm as well-placed to navigate the antitrust headwinds. While there is headline risk, as evidenced by the recent release and subsequent share price action, we believe investors can purchase Alphabet at an attractive price.
The big picture: Even as the antitrust case looms large, we’d ask investors to view Alphabet’s strengths as an overall business, with the firm well-positioned in many markets, including advertising, video, public cloud, and generative AI. We still view the firm’s efforts to diversify away from search-based advertising positively. In particular, we believe its investments in Google Cloud will be value-accretive as interest in AI accelerates public cloud spending.
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