TLDR:
- Google plans to appeal against the “adverse” portion of the U.S. court’s decision in the DOJ monopoly case
- U.S. District Judge Leonie Brinkema found Google liable for monopolizing publisher ad servers and ad exchanges markets
- The court ruled Google’s publisher tools violated antitrust laws by excluding rivals
- The DOJ has suggested Google should sell off at least its Google Ad Manager
- Analysts maintain a “Moderate Buy” consensus rating despite the antitrust setback
Google is gearing up to fight back against a recent court ruling that found the tech giant guilty of monopolizing key digital advertising markets. The ruling, which came down on Thursday, is just the latest chapter in the ongoing battle between the Department of Justice and one of the world’s most powerful technology companies.
U.S. District Judge Leonie Brinkema determined that Google is liable for “willfully acquiring and maintaining monopoly power” in markets for publisher ad servers and ad exchanges. These technologies are crucial for news publishers and online content providers to monetize their websites through advertising.
The decision wasn’t entirely against Google, though. The company pointed out on Friday that the judge issued a mixed decision, ruling that the DOJ failed to prove Google’s advertiser tools or its acquisitions of DoubleClick and AdMeld were anticompetitive.
However, the judge did find that Google’s publisher tools violated antitrust laws by shutting out competitors. This partial victory for the DOJ could still have major consequences for Google’s business model.
What’s at Stake for Google
The DOJ wants Google to sell off at least its Google Ad Manager, which includes both the company’s publisher ad server and ad exchange. This would be a major shake-up for the tech giant’s advertising business, which remains its primary revenue source.
Publisher ad servers are platforms that websites use to store and manage their digital advertising inventory. Along with ad exchanges, these technologies allow content providers to make money through advertising.
The court ruling specifically found that Google illegally dominates two markets for online advertising technology. This monopolization, according to the judge, has harmed competition in the digital advertising space.
Analysts Remain Cautiously Optimistic
Despite this legal setback, Wall Street analysts are maintaining a somewhat positive outlook on Google’s parent company, Alphabet. According to recent reports, analysts have a “Moderate Buy” consensus rating on Alphabet stock based on 27 Buys and 10 Holds assigned in the past three months.
The average price target for Alphabet shares sits at $197.45, which implies a 31% upside potential from current levels. This suggests that many analysts believe the company will weather this storm.
Gil Luria, a four-star-rated analyst at D.A. Davidson, noted that the DOJ is pushing hard to break up Google’s monopolies and doesn’t seem likely to back down. Luria suggested it might be smarter for Google to take the initiative by separating some of its businesses, like its ad network, Chrome, or Android.
Interestingly, Luria believes that if Google splits up, it could actually increase the overall value for shareholders. The analyst thinks the combined worth of Google’s separate businesses might be much higher than its current stock price. Currently, Luria has a Hold rating on Alphabet stock.
What Comes Next
The decision will likely trigger a lengthy and costly appeals process that could reverse some of Judge Brinkema’s findings. Google has already stated its intention to appeal the “adverse” portion of the ruling.
The next step in the legal process will be another trial to decide how Google should fix the problem. This could potentially lead to the company being forced to sell some of its ad tools. That trial hasn’t been scheduled yet.
Citi analysts suggest that while appeals may take time to complete, Google could eventually spin off its ad network. They estimate Google’s advertising network will make up 8% of the company’s gross revenue in 2025.
Meanwhile, Brian Pitz, a top-rated analyst at BMO Capital, has reduced the price target for Alphabet stock to $200 from $230, citing an uncertain outlook for advertising revenue. Despite this reduction, Pitz maintained his Buy rating on the stock.
The stock market has already reacted to the news, with Alphabet shares down 1.38% following the announcement of the court’s decision.
For Google, this case represents one of several antitrust challenges the company currently faces both in the United States and abroad. How the company navigates this particular legal hurdle could set precedents for its other antitrust battles.
The appeals process is expected to take months, if not years, to resolve. In the meantime, Google will continue operating its advertising business as usual while preparing its legal defense for the appeal.
The court’s decision marks a rare victory for the U.S. government in its efforts to rein in the power of Big Tech through antitrust enforcement. If upheld, it could reshape the digital advertising landscape where Google has been a dominant player for years.
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