Shares of Google’s parent company, Alphabet Inc (NASDAQ:GOOG), fell more than 5% on November 21 as prosecutors outlined specific proposals that would significantly change the way the search giant operates its business. Shortly after, Google’s stock price rose again as the company unveiled Willow, a quantum computing chip that promises to revolutionize the world in the long run. Amid these exciting developments in quantum computing, investors seem to have forgotten the threat posed by lawmakers. Google has traded at an average P/E of 23.3 over the past five years, and with a forward P/E of 25, it is no longer undervalued from a historical perspective. Given this rich valuation, a negative outcome of the antitrust case could have a significant impact on Google’s stock price in the near future.
In September, a court ruled that Google had violated antitrust laws by monopolizing the search engine business. Concerns about Google’s future direction suddenly surfaced after the Justice Department suggested that Alphabet sell Google Chrome and share data with rivals. Let’s take a look at an overview of the entire litigation process.
Google began its journey in Silicon Valley as a startup offering innovative ways to search the emerging Internet. Now synonymous with the Internet, it is one of the richest companies on the planet, with a market value of more than $1 trillion and annual revenues of more than $160 billion.
Popular search engines are primarily distributed on mobile devices and computers and include web browsers and other search access points. Over the past decade, internet searches on mobile devices have rapidly increased and surpassed searches on computers. As a result, mobile devices have become the most important means of search distribution in the United States, making them an essential tool for businesses to effectively reach consumers. Google understands the importance of being the default mobile search engine and has actively partnered with mobile device manufacturers to ensure this. As the graph below shows, despite the threat posed by the rise of generative AI applications such as ChatGPT, Google’s dominance remains unparalleled.
Google controls nearly 90% of the world’s searches through its Chrome browser, its widely used flagship browser with over 3 billion users. The popular Chrome browser is the gateway to advertising revenue, Google’s biggest source of revenue. Chrome also played a key role in introducing Gemini, the company’s proprietary AI product, to users. Through Gemini, SE summarizes search results and provides a more personalized experience. According to Bloomberg, Chrome has the potential to receive the following high ratings: 20 billion dollars If the company decides to sell the browser to settle a lawsuit with the Department of Justice.
In 2020, the Department of Justice filed a landmark lawsuit alleging that Google dominated the general search market by creating strong barriers to entry and feedback loops that maintained its dominance. The Department of Justice accused Google of using anticompetitive tactics to maintain its monopoly on the general search services, search advertising, and general search text advertising markets that it has built upon.
Google’s search business is in crisis. It’s time to be cautious
Google recognizes that a preset default general search engine is the most effective distribution method for mobile and computer search access points. This is because users rarely change defaults, creating a virtual monopoly, especially on mobile devices where defaults are particularly sticky. Google is paying tens of billions of dollars to remain the default search engine for major smartphone brands such as Apple Inc (AAPL) and Samsung Electronics Co Ltd.
During the trial, Microsoft Corporation (NASDAQ:MSFT) CEO Satya Nadella said: testimony Highlights Google’s market power and reveals how it has become a ritual in everyone’s daily life. Microsoft’s search engine, Bing, struggled to compete because Google secured default listing agreements across multiple platforms, the CEO said.
In September, Judge Amit Mehta of the U.S. District Court for the District of Columbia dominated Supporting the Department of Justice, it argued that Google had an illegal monopoly in the search industry. The court found that Google violated Sections 1 and 2 of the Sherman Act outlawing monopolies. Elaborating on this decision, the court wrote:
Google has manipulated the management of Chrome and Android to its benefit, distributing monopoly profits under conditions that induce third parties across the ecosystem to help maintain Google’s monopoly.
Options that have been proposed to solve this problem include corporate separation, regulation, and business restrictions. Other prosecutors have even suggested that Google share user data with competitors. The Justice Department is also seeking to transfer its Pixel smartphone deal with Apple, which is known for its longstanding competition with Apple for browser supremacy and smartphone sales. The judge began the trial on the following proposition: April 2025and Google is expected to announce its proposal later this month.
in filingthe Department of Justice wrote:
To remedy these harms, the (initially proposed final judgment) requires Google to sell Chrome. This permanently ends Google’s control over this important search access point, giving rival search engines access to the browser that is the gateway to many users. internet.
Additionally, the Department of Justice proposed limiting or prohibiting default contracts and revenue-sharing agreements related to search and search-related products.
The Justice Department also said that through the proposed 10-year relief package, Google should avoid new competitive threats through acquisitions, minority investments, and partnerships. The filing further emphasizes that the proposed remedies are aimed at ending Google’s illegal conduct and opening up the market for rivals and new entrants to emerge.
The Department of Justice wants Google to also sell its Android mobile operating system to restore competition, but such a sale could draw significant opposition from Google and other market players. I am aware that there is.
The Justice Department also expects Google to increase transparency and control over advertisers, halt illegal distribution, and prevent circumvention while enabling enforcement of the proposed final ruling.
Search accounted for $49.4 billion of Alphabet’s revenue in the third quarter of 2024, accounting for nearly 55% of total revenue for the same period. Alphabet CEO Sundar Pichai Confirmed Google reportedly pays Apple 36% of Safari’s search revenue under the terms of its default search agreement. Google will spend nearly $49 billion in traffic acquisition costs in 2022, including all the money it paid Apple and Samsung to maintain its position as the default search engine. Pichai said the company is paying Apple nearly $10 billion for the incentives. Given the nature of the Justice Department’s proposed actions, Chrome may soon lose its preferred status on popular smartphone devices such as Apple iPhones and Samsung devices.
Google’s search business is in crisis. It’s time to be cautious
Google Chief Legal Officer Kent Walker condemned The proposed remedy argued that such measures would undermine the safety and privacy of Americans, discourage investment in artificial intelligence, and represent a gross overreach of government power. Walker argued that the decision severely harms consumers, developers and small businesses, and threatens America’s economic and technological leadership.
Google added that such measures would negatively impact innovative services like Mozilla’s Firefox. The company’s business relies on charging Google search fees. It also intentionally blocks users’ ability to access Google Search. As a last resort, the company added:
Appoint a technology board with sweeping powers over online experiences and require governments to micromanage Google Search and other technologies.
Ironically, if Google aims to reduce its traffic acquisition costs, it could lead to increased profits for Google. Chrome’s importance goes beyond its role in search, with associated costs reaching $40 billion in the first nine months of 2024, nearly 40% of Google’s cost of revenue. Reducing these expenses can significantly increase a company’s gross profit. Additionally, companies like Amazon.com, Inc. (NASDAQ:AMZN) are already subject to antitrust violations, making it difficult to find potential buyers for Chrome. Google is likely to appeal this case.
Google’s search business is currently in jeopardy due to antitrust laws. But these are not the only risks facing the search giant.
The rise of generative AI applications, especially search-focused ones like Perplexity and SearchGPT, threatens to take market share away from Google despite the company’s investment in Gemini.
Consumer behavior is evolving, and searchers are increasingly looking for direct answers to their questions, rather than a series of links to websites where the answers may be found.
Slowing growth in YouTube advertising.
Intense competition in the cloud market threatens to slow the growth of the Google Cloud division.
Despite these challenges, Google appears to be highly valued with its historically high stock price and above-average valuation multiple. From a long-term perspective, it makes more sense to sit on the sidelines today to assess how Google overcomes the threats posed by the Department of Justice and other AI applications.
None of the Justice Department’s proposed remedies bode well for Alphabet’s business in the long run. expert The Justice Department has suggested it appears to be using the situation as a negotiating strategy to force Google to agree to less drastic measures to help users switch to another search engine. If a sale were to occur, the transition period could create significant uncertainty and stress for many Google employees and shareholders. The court believes that new technologies, including advances in artificial intelligence, may present new competitive opportunities. The Justice Department’s request is one of the most aggressive attempts to break up a tech company since the antitrust case against Microsoft in 2001. Google’s rapid growth in the 2000s was fueled in part by the resulting Microsoft lawsuit settlement.
Given the growing challenges facing Google and its high valuation, long-term investors may want to take a step back today and watch new developments from the sidelines. This is because there is a lot of uncertainty about Google’s search engine dominance. It was the key to past success.
Adnan is a passionate doctor from Pakistan with a keen interest in exploring the world of politics, sports, and international affairs. As an avid reader and lifelong learner, he is deeply committed to sharing insights, perspectives, and thought-provoking ideas. His journey combines a love for knowledge with an analytical approach to current events, aiming to inspire meaningful conversations and broaden understanding across a wide range of topics.
