Google Faces Second Antitrust Trial: What Investors Need to Know
Google is set to face its second antitrust trial next week in a Virginia district court, raising eyebrows but not alarms among investors. Unlike the ongoing search trial, Barclays analysts suggest that this new trial should not be a significant concern for Google's financial health, aside from potential headline risks.
The Financial Impact: Minimal at Best
The crux of the matter involves Google's advertising technology stack, which constitutes less than 5% of the company's gross profit. Specifically, the area under scrutiny represents a mere 1% of Google's gross profit. This trial is expected to unfold this fall, with a verdict anticipated in early 2025, followed by any necessary remedies.
Barclays analysts speculate that Google (NASDAQ: GOOGL) might be required to "unbundle certain key features of its ad tech business, particularly the steering of impressions via its publisher ad server to its ad exchange (and away from competitors)." However, they anticipate that the elimination of this bundle would have only a minor impact on Google's overall revenue.
Data Collection Practices: A Minor Complication
Another potential hurdle could be Google's data collection practices, particularly regarding Project Narnia-2. In 2016, Google consolidated user profiles into a single entity for targeting purposes. Reversing this process could slightly affect YouTube revenue and, to a lesser extent, Search revenue in the future.
Past Antitrust Rulings: A Mixed Bag
Last month, a federal judge ruled that Google had violated U.S. antitrust laws by maintaining monopolistic control in the search and advertising markets. "After having carefully considered and weighed the witness testimony and evidence, the court reaches the following conclusion: Google is a monopolist, and it has acted as one to maintain its monopoly,” stated Judge Amit Mehta.
This ruling was a notable victory for the Department of Justice (DOJ), although the judge did not support all of the government’s arguments. While rejecting the claim that Google holds monopoly power in a specific segment of the ads market, he concurred that Google monopolizes “general search services” and “general search text advertising."
Breaking It Down: What This Means for You
For Investors:
- Minimal Financial Impact: Google's ad tech stack under scrutiny represents only about 1% of its gross profit, so financial repercussions should be minimal.
- Headline Risks: While the trial is unlikely to affect Google's bottom line significantly, be prepared for some volatility due to media coverage.
For General Public:
- Advertising Practices: The trial may lead to changes in how Google handles its ad tech business, but this is unlikely to have a noticeable impact on user experience.
- Data Privacy: Potential changes to data collection practices could slightly alter how ads are targeted to you, but again, the impact should be minor.
In summary, while the trial is a significant legal event, its financial impact on Google and the broader market should be minimal. Investors, keep an eye on the headlines but rest easy knowing that the core business remains robust. For everyone else, expect little to no change in your day-to-day interaction with Google's services.