Google could now be facing years of both federal and state investigations into both antitrust issues and consumer protection laws.
On the antitrust side, Google has a virtual monopoly on search engine advertising. That not only allows them to effectively control the price market for advertising but also the ability to engage in anticompetitive practices by locking out certain types of advertisers.
A number of years ago, for example, Google decided it would no longer permit payday lenders to advertise on its platform.
In regards to consumer protection, the Texas attorney general has the most intriguing possible case. Google has repeatedly been accused of censoring conservative viewpoints through both search engine results and on YouTube. Google has also allowed YouTube to demonetize the channels of numerous conservative commentators.
The addition of attorneys general from the states getting involved could also be a boost to the federal case.
Twenty years ago, during the investigation into Microsoft’s antitrust violations, the state attorneys general provided plenty of additional evidence in support for federal investigators and prosecutors. That assistance proved to be useful in the eventual finding by a federal court that Microsoft was indeed a monopoly.
What does this mean for Google stock?
One of the worst things that can happen to a company is anything that generates uncertainty. Investors hate uncertainty. Investors like to buy up stock in companies that have a clear mission, clear execution on that mission, and deliver predictable earnings growth.
That’s because investors need that predictability in order to determine the current and future value of a company, as expressed by its stock price.
Anytime uncertainty enters the picture, it can throw that valuation assessment off. Unpredictability usually comes in the form of competition. Sometimes it comes in a short-term package, such as the trade war with China.
The worst of all possible uncertainties, however, is a federal investigation. State investigations can cause a degree of uncertainty as well, but states usually lack enough power to materially affect a company’s business.
The federal government, however, carries a large hammer and to the federal government, everything looks like a nail.
An investigation and eventual prosecution could take years. Thus, even if Google delivers terrific earnings results quarter after quarter, the stock price may not respond because of these lingering uncertainties.
Ed Butowsky, Managing Partner at Chapwood Capital Investment Management in Dallas, tells CCN:
“What happens if the government decides Google is a monopoly and calls for a remedy that will reduce ongoing earnings growth? What if Google is ordered to be broken up? What if an investigation determines that Google has a pricing structure that has been anticompetitive, and requires it to not only pay a huge fine, but reduce prices?”
That’s called uncertainty.
That’s exactly what could hold Google stock back for quite some time.
Disclaimer: The views expressed in this op-ed are solely those of the author and do not represent those of, nor should they be attributed to, CCN Markets.
Last modified (UTC): September 4, 2019 00:52