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Stock Analyst Update

Google Could Be More Willing to Negotiate With DOJ

Stock still viewed as attractive, wide moat rating maintained.


According to a Wall Street Journal article, sources have indicated that Google (GOOGL) may be willing to separate its advertising technology business from its larger advertising operation, with Alphabet remaining as the new firm’s parent company. We think such a proposal, if true, is an attempt by Alphabet to provide more transparency with regard to its advertising technology business and how it affects advertising-based platforms such as search and YouTube, in hopes of easing the antitrust pressure that the firm continues to face from the Department of Justice. We do not expect Alphabet to willingly sell its advertising technology business, and a fight with the Department of Justice would probably be a lengthy one. We expect a final decision likely would be based on the Supreme Court’s views. If Google is forced to sell, based on forward valuation multiples of some other advertising technology providers, we estimate this business could be valued at more than $115 billion, depending on the assets included and the structure of the new business.

While Alphabet continues to face regulatory pressure not only in the United States but also in Europe, we are pleased with its attempt to cooperate and possibly resolve antitrust issues. We are maintaining our $3,600 fair value estimate and wide moat rating and view the stock as attractive.

Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.