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Stock Analyst Update

States Target Alphabet’s Search and Digital Advertising

States are demanding Google redesign its search results, as they claim the firm itself benefits based on which results are prioritized.


Alphabet (GOOGL) is now facing more antitrust legal battles as 35 states, the District of Columbia, and the territories of Puerto Rico and Guam filed suit on Dec. 17 against Google’s search. In addition, Texas sued Google for its dominance of the online ad market. The search suit likely will be combined with the one that the Justice Department filed on Oct. 20. Our opinion regarding that suit has not changed as we think it may ultimately be decided by the U.S. Supreme Court, where the application of the consumer welfare standard, which benefits Google, is more likely. In terms of Texas’ advertising case, increases in competition (such as Amazon) and the continuing decline in ad prices may help Google. We continue to rate Alphabet a wide-moat firm and believe it will maintain its network effect and intangible asset moat sources. We are maintaining our $1,980 fair value estimate.

In the search suit, states are demanding Google redesign its search results, as they claim the firm itself benefits based on which results are prioritized. In addition, it is alleged that Google has demonstrated anticompetitive behavior by paying Apple to keep Google as the default search engine on iPhones. Further, the suit also focuses on the lack of openness when it comes to connected cars being able to have not only the Google Assistant but also Amazon’s Alexa.

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Ali Mogharabi does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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