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Can EU’s antitrust fine shake Alphabet’s share price?

Google owner Alphabet’s [GOOGL] share price has shrugged off a European Union antitrust ruling rejecting its appeal to a fine which could leave the company with a hefty bill.

Last Wednesday, November 10, the EU’s General Court ruled that the European Commission was right to fine Google $2.8bn back in 2017 for placing its own comparison Google Shopping services at the top of its search results at the expense of rivals. Despite this, the Alphabet share price has climbed around 2% since the announcement until the close on 15 November.

The company’s chief executive Sundar Pichai (pictured above) has maintained that antitrust cases are not new to Google, and the company welcomes best business practices.

 

 

EU ruling

“The General Court finds that, by favouring its own comparison shopping service on its general results pages through more favourable display and positioning, while relegating the results from competing comparison services in those pages by means of ranking algorithms, Google departed from competition on the merits,” the General Court said.

A European Commission spokesperson added: “Today’s judgment delivers the clear message that Google’s conduct was unlawful, and it provides the necessary legal clarity for the market.”

“Today’s judgment delivers the clear message that Google’s conduct was unlawful, and it provides the necessary legal clarity for the market” - Spokesperson for the European Commission

 

Alphabet had challenged the initial EC ruling and can once again appeal against the new decision at the EU’s highest court, the European Court of Justice.

A Google spokesperson told CNBC: “Shopping ads have always helped people find the products they are looking for quickly and easily, and helped merchants to reach potential customers. This judgement relates to a very specific set of facts and while we will review it closely, we made changes back in 2017 to comply with the European Commission’s decision.”

 

Lawsuits piling up

Experts said that the ruling would strengthen the EU’s upcoming Digital Markets Act, which is looking to regulate the activities of Google and rivals such as Facebook and Apple.

As part of the Act, there is expected to be an end to so-called self-preferencing, where tech firms favour their products at the expense of others. Other changes include restricting target advertising to allow more user privacy.

Alphabet, whose share price has rocketed 70.5% since the start of January, boosted by the growth in demand for YouTube and more people shopping online in the coronavirus pandemic, is no stranger to lawsuits.

Another example is a US antitrust lawsuit by a group of state attorneys general, which was filed in October. It states that Google charges up to four times the fees of other online advertising exchanges, while its ad-buying tools win more than 80% of the auctions hosted on its exchange.

This is just one of four government antitrust complaints against Google.

The US justice department and a group of US states have sued Google over its dominance in internet search, while another state case is looking at Google’s Android mobile operating system.

70.5%

Alphabet's share price increase since the start of January

 

 

Analysts remain bullish

Despite the regulatory overhang, analysts remain bullish on Alphabet. “We anticipate antitrust investigations will carry on with great fanfare,” Brian White, an analyst with Monness Crespi Hardt, said before Alphabet’s recent third-quarter results.

That performance, where earnings per share of $27.99 and revenues of $65.12bn both beat analysts’ forecasts, has reinforced market confidence that the strength of Alphabet’s business can out-ride its legal challenges.

There are myriad challenges ahead, as Alphabet and peers such as Amazon [AMZN] continue to grow and dominate markets. That worries governments, regulators, investors and some consumers.

The fundamentals of Alphabet however, from its huge advertising platform to YouTube and its artificial intelligence-focused subsidiary DeepMind, remain attractive, both now and into the future.

Disclaimer Past performance is not a reliable indicator of future results.

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