The U.S. Department of Justice (DOJ) is taking aim at Alphabet's Google (GOOG), proposing a breakup of the tech giant to curb its dominance in the search engine market.
Following an August ruling by U.S. District Judge Amit Mehta that concluded Google holds a monopoly in search, the DOJ outlined possible remedies, including separating Google’s search business from its other operations, such as YouTube, Cloud, Android, and Chrome.
The last time a similar move occurred was in the 1980s when AT&T (T) was split into multiple entities. The DOJ’s proposal is the most aggressive effort against a tech giant in decades, signaling the Biden administration’s broader push to rein in Big Tech. The implications could stretch beyond Google, potentially setting the stage for future actions against other tech giants like Apple and Amazon.
Google strongly opposes the prospect, with the company’s Vice President of Regulatory Affairs, Lee-Anne Mulholland, calling the DOJ’s proposals “radical and sweeping” and warning of unintended consequences for consumers and businesses.
Investors Explore Alphabet’s Breakup Potential
While a government-enforced breakup of Google would undoubtedly shake up the tech industry, investors are assessing whether it might reveal untapped value within Alphabet’s vast empire. Alphabet is currently valued at around $2 trillion, with Google search accounting for about 70% of its revenue. The remainder comes from YouTube, Google Cloud, and emerging ventures like Waymo, its self-driving technology division.
A sum-of-the-parts (SOTP) analysis suggests Alphabet’s separate entities could be worth more than the whole. Based on current valuation multiples in the tech industry, analysts estimate that Google Cloud could be valued at around $300 billion, while YouTube might be worth $450 billion. Google search alone could be valued at $1.6 trillion, depending on market conditions.
According to Bill Nygren, portfolio manager at Oakmark Select mutual fund, breaking up Alphabet’s various units could provide investors with greater clarity and lead to a higher overall valuation. If these estimates are accurate, Alphabet’s total worth could reach $2.6 trillion—30% higher than its current market value.
Potential Impacts on Google and the Tech Landscape
While Alphabet faces the potential of being split, it is far from certain how this would affect its search dominance. Google’s search platform is deeply integrated into its ecosystem, with major contracts securing its position as the default search engine on billions of mobile devices. Google pays up to $26 billion annually to maintain this dominance, particularly through deals with Apple and Samsung.
Should the DOJ succeed in severing Google’s search business from its other operations, it could have far-reaching implications for the tech sector. Competitors like Microsoft (MSFT), Amazon (AMZN), and Meta (META) could gain ground in search, cloud, and video streaming. Yet, some investors and analysts remain skeptical, questioning whether such a move would truly benefit competitors or consumers.
The DOJ is expected to deliver more detailed recommendations by November 20. However, a final decision may take years, with Google planning to appeal any unfavorable ruling. Despite the legal uncertainty, the case could spark a reevaluation of the company’s business model and open doors for a more competitive digital landscape in the years to come.
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