Google Parent Alphabet's Breakup Could Boost Stock Value, Citing Higher Investor Appeal For Pure-Play Assets: Analyst

In a groundbreaking judgment, a U.S. federal judge found that Alphabet Inc. GOOG GOOGL illegally sustained search and text advertising monopolies.

This ruling is a notable triumph for the Department of Justice, led by Jonathan Kanter.

Antitrust regulators accused Google’s parent company of preserving its monopoly in online search and advertising by paying $26 billion to Apple Inc. AAPL, Samsung Electronics, and other smartphone manufacturers over several decades for prominent placement on browsers and mobile devices.

This lawsuit was in addition to two DOJ antitrust cases against Google, alleging that the company illegally fortified its monopolies.

Also Read: Google Antitrust Crusade Was Spearheaded By Jonathan Kanter, Who Is The Attorney Taking On Tech Giants Like Apple And Amazon

Needham analyst Laura Martin reiterated Alphabet stock a Buy rating with a price forecast of $210.

In the long term, Alphabet’s strategic position is best-in-class, the analyst writes.

The company’s $237 billion in global ad revenue for 2023 accounted for 38% of worldwide digital ad spending, eMarketer reports. In digital markets, which tend to favor dominant players, Alphabet has emerged as a clear winner, Martin highlights.

The analyst views Alphabet’s breakup as beneficial, noting its parts are ‘worth’ more individually than as a whole.

According to Martin, the EU will likely mandate Alphabet to spin off its third-party network ad business.

YouTube would be valued at $455 billion-$643 billion if separately traded.

The analyst writes that if Alphabet is broken up, its shares would likely appreciate for several reasons.

Investors value pure-play assets more because they can better manage risk exposure than conglomerates.

Increased transparency from separate entities would meet materiality standards, offering more detailed data to investors, Martin adds. Employee retention might improve as staff receive stock in the company they can influence directly.

A breakup would also increase capital allocation accountability to Wall Street.

Additionally, by reducing its size through spin-offs, Alphabet could lower regulatory risks and potential fines, as regulators often target “Big Tech” based on market cap.

Martin expects the company to report EPS of $7.62 in FY24.

Price Action: GOOG shares are trading higher by 0.31% to $161.13 at the last check on Tuesday.

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