Analysts, investors, and experts are closely examining the potential impacts of a breakup or restructuring of Alphabet Inc. GOOG GOOGL as the Department of Justice considers measures to address Google's dominance in the search market.
Legal Case Against Google: Former Department of Justice Assistant Attorney General of the Antitrust Division Bill Baer weighed in on the latest on Google's alleged monopoly and its search engine dominance.
"I think the case is very strong," Baer told Yahoo Finance.
Baer said the case is now in the sentencing phase and a judge will have to make a ruling that is meaningful for competition to flourish.
"How do you restore a market that Google has monopolized for decades?"
The legal expert said there are multiple options that could be considered, with the main consideration being that there has to be opportunities for other search engines.
One option would be for Google to give up data to others, Baer added.
"That's how Google makes some of its money."
Baer said Google leverages users’ search habits to attract advertisers, and due to its monopolistic position, it is able to charge those advertisers premium rates.
Another option for Google and the judge could be to separate the Android business or the Chrome browser, both of which have played a significant role in maintaining the company’s monopoly on search.
Baer said the process will likely include the judge making a decision on what measures are needed in the next few months, which could be followed by an appeal by Google and potentially the case making its way to the U.S. Supreme Court. The total timeline could last for one to two years, Baer said.
Analysts See Upside: A breakup or business separations could be good for shareholders, Jefferies analyst Brent Thill said.
"We don't believe a full breakup would happen. Even if it did, it would be good for shareholders because the sum of the parts is greater than the whole," Thill told Yahoo Finance.
The analyst said an analysis of big technology companies like Alphabet, Meta Platforms and Amazon.com reveals that many parts of the businesses are not being valued based on historic multiples and a breakup could be a better outcome for shareholders.
Thill said the DOJ push comes as the advertising market is becoming more fragmented, with Meta gaining on Google.
The analyst also said that Google has added a lot of positive value to our lives and is not all bad.
"The government likes to point the finger at all the bad things they do."
Thill said the DOJ probe is an overhang and a distraction and could be similar to a past probe into Microsoft Corporation that lasted nearly 10 years and saw the stock trade sideways.
"We continue to believe investors should take advantage of this volatility."
Needham analyst Laura Martin has been emphasizing for months that a forced breakup of Alphabet could lead to a significantly higher valuation.
"We believe that GOOGL is worth more in pieces than together, so we welcome regulators' attempts to break up GOOGL," Martin said in a new investor note.
Martin said the European Union will likely require Alphabet to spin off its third-party network ad business.
A break-up could put a spotlight on the valuation of video platform YouTube.
"We calculate that YouTube would be valued between $455B-$643B if separately traded."
Martin said Alphabet shares would likely trade higher if the company breaks up due to investors being willing to pay more for "pure-play assets," more data points could be publicly shared and employees receiving shares in business lines they directly impact.
Martin has a Buy rating on Alphabet and price target of $210.
In July, Martin said regulatory pressures could cause shareholders to feel uneasy, but they have a silver lining with the potentially higher share value.
"Breaking up GOOGL would drive 10%-15% Upside for GOOGL shareholders, as spinning off even 5% of YouTube would result in 8%/share of upside for GOOGL shareholders," Martin said at the time.
Wedbush analyst Dan Ives said a breakup of major technology companies like Alphabet is "highly unlikely."
The recent Department of Justice win against Alphabet is a "huge notch on the belt" for regulators, Ives said.
He added that Alphabet is likely to make business model changes due to the DOJ probe, and said antitrust battles could last for years and put "heavier scrutiny of M&A."
GOOG Price Action: Alphabet shares are down 2.3% to $162.03 on Wednesday, versus a 52-week trading range of $121.46 to $193.31.
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