Sometimes the government giveth, sometimes the government taketh away. Alphabet Inc. (NASDAQ: GOOGL) was just given a huge ruling in its antitrust case by the District Court judge that some may easily consider to be the best case scenario. Google’s parent stock surged on the news — but Apple Inc. (NASDAQ: AAPL) is also huge winner here by default.
The U.S. District Judge ruled somewhat against Alphabet’s monopoly on internet search. While that sounds bad or less than positive, the reality is that this was a victory because Alphabet was having to craft plans for how it would navigate a breakup of its technology empire under the worst case scenario of a forced breakup. That’s no longer a risk.
Alphabet can continue making revenue share payments to browser developers for default search placement — as long as the deals are not exclusive and as long as the agreements also allow the browser developer to set a different default annually. The contracts are not allowing for an exclusivity requirement to phones and devices and they also cannot be tied to required distribution of other Google/Alphabet products.
At the end of the day, Google’s percentage of TAC revenue would be expected to head lower, but the complex nature of search contracts (plus future Gemini contracts) might actually leave Alphabet’s revenue components unchanged. That’s a huge victory despite a slap on the wist in the ruling.
Now consider that Alphabet/Google have the most capital in any search businesses to compensate its partners. It may even have the best technology to power those products, although that is for others to decide.
An additional benefit to the ruling is that there will not be required choice screens which would have likely forced consumers to shift away from Google search.
WALL STREET ALPHABET GOES A-Z…
Oggonomics has compiled multiple analyst report summaries seen from Wall Street reacting to the antitrust news. The reality is that none of the reactions are negative for Alphabet, and many analyst price targets hikes have been thrown out as well.
Dan Ives of Wedbush Securities (at the @DivesTech handle) said in a tweet (via X)… Following today’s court announcement, we are increasingly constructive in the longer-term durability of Google’s Search business and are raising our estimates accordingly. Raising price target on Alphabet to $245. We now expect Apple and Google to do AI Gemini deal.
Fund manager and former analyst Dan Niles (at the @DanielTNiles handle) said in his tweet (via X)… Terrific outcome for $GOOGL & $AAPL by extension! Court remedy requires no spin-off of Chrome AND Google can keep paying Apple to be the default search engine. Google’s multiple should expand to catch up to peers vs being at 21x vs the S&P at 24x.
Barclays reiterated its Overweight rating on Alphabet and raised its price target to $250 from $235.
BofA Securities reiterated its Buy rating and raised its price objective to $252 from $217 on Alphabet, noting that most of Google’s partners will remain aligned with Google and will have incentive to develop their own search capabilities.
D.A. Davidson reiterated its Neutral rating on Alphabet but still raised its price target to $190 from $180.
JMP Securities reiterated its Market Outperform rating and raised its price target to $250 from $225.
JPMorgan reiterated its Overweight rating and raised its price target to $260 from $232.
KeyBanc Capital Markets reiterated its Overweight rating and raised its price target to $265 from $230.
Morgan Stanley reiterated its Overweight rating and $210 target, but said acknowledges that from here EPS revisions (stronger search results) and/or more evidence of durability versus ChatGPT in next 12 months (to drive multiple) will be important to reach its $260 bull case price target.
Needham & Company reiterated its Buy rating and raised its price target to $260 from $220.
Oppenheimer reiterated its Outperform rating and raised its price target to $270 from $235.
RBC Capital reiterated its Outperform rating and raised its price target to $260 from $220.
Rosenblatt maintained a Neutral rating on Alphabet but still raised its price target to $224 from $191.
Wedbush reiterated its Outperform rating and raised its price target to $245 from $225.
HOW APPLE GETS A BOOST…
Apple also is the biggest secondary winner here. This judge’s ruling means that it can leave its search deal as is for now — or maybe even as long as it wants as long as it sticks to the guts of the ruling.
The long and short of the victory implies that, while exclusive contracts are barred, Google can still pay distribution partners for default status and it may not have any immediate change to Apple’s revenue from Google traffic acquisition costs. Other analysts have chimed in positively, with some price target hikes, on Apple as well.
BofA Securities reiterated its Buy rating and raised its price objective to $260 from $250.
CFRA (S&P) reiterated its Buy rating and lifted its price target to $261 from $235, noting that Alphabet can continue making payments to preload its search engine on iPhones despite barred exclusivity and that the DOJ ruling permits non-exclusive revenue-sharing that leaves room for Apple/Google to negotiate new deals which should entail choice screens.
Morgan Stanley reiterated its Overweight rating with a $240 price target on Apple, noting the DOJ response as “a near best-case scenario” where Apple can still collect TAC payments from Google (with conditions) and can renegotiate the default search socket annually…
Wedbush Securities reiterated its Overweight on Apple with a $270 price target.
To be continued (MORE TO FOLLOW WITH CLOSING PRICE DATA)
