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JPMorgan analyst Doug Anmuth points out that this week’s start of remedy proceedings between Google’s parent company, Alphabet Inc (NASDAQ:GOOG) (NASDAQ:GOOGL), and the Department of Justice (DOJ), will lead to a “range of potential negative outcomes.”
“We believe the status quo is no longer possible, and we expect the judge to decide on a remedy that will be punitive for Google,” Anmuth writes.
Google, the most-used search engine in the world with more than $300 billion in annual revenue, will “experience a negative financial impact from potential remedies or outcomes,” Anmuth adds. Potential outcomes range from punitive measures to a possible break-up of Google's crown jewels, Chrome and Android.
One scenario that could play out is that Google may be forced to open up its search distribution channels — Apple, third-party browsers, Android, and Chrome — to rival search engines.
This would mean that Google would continue to pay traffic acquisition costs to partners but would have to allow competitors a foothold in its backyard, Chrome and Android.
But what does this mean for Google's bottom line? Anmuth says Google could see up to a 10% hit on its earnings per share (EPS) due to these changes, with a worst-case scenario reaching a 20% decline.
Google’s ability to appeal the decision could drag on for years, giving the company time to pivot its focus to other growth engines, he adds.
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While the possibility of Google being forced to break out Chrome or Android is on the table, Anmuth sees it as unlikely. He argues that opening up these platforms to more user choice would likely achieve the DOJ's goals without the drastic step of breaking up the company.
Plus, there's the risk that such a move could degrade service quality, hurting consumers rather than helping them.
The DOJ’s ultimate aim is to limit Google’s reach and boost competition, but Anmuth warns of privacy concerns if Google is forced to share patents or data with competitors. “The government’s goal would be to limit Google's reach,” he says, but at what cost?
The road ahead is uncertain for Google, but one thing is clear: the company is at a crossroads. With the DOJ trial threatening to shake up Google’s core business, Anmuth emphasizes the potential Google has in other areas — Generative AI and Cloud.
As Anmuth aptly notes, "The range of potential negative outcomes remains wide," but Google’s next moves could redefine its future in a rapidly changing tech landscape.
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