stock is down on Friday, but it’s not because of antitrust headlines. The spillover from Snap’s warning Thursday evening that its advertising growth would slow going forward is doing much more to pressure internet advertising stocks industrywide.
On Friday, an antitrust investigation begun in 2019 by a bipartisan coalition of attorneys general from almost every state into Google’s advertising practices spilled into public view after a federal judge allowed much of the suit to be unsealed. The unredacted lawsuit says that Google takes a percentage of each advertising transaction on its marketplace that is typically two to four times as large as those charged by rival digital advertising exchanges. It alleges that Google uses strategies that intentionally reduce options for publishers and advertisers and favors the company’s own ad-buying tools, helping it win more than 80% of auctions on its exchange.
The details of the suit, which is being led by Texas AG Ken Paxton, were first reported by The Wall Street Journal.
“Just because Attorney General Paxton asserts something doesn’t make it true,” Google said in a statement. “This lawsuit is riddled with inaccuracies and our ad tech fees are actually lower than reported industry averages. We will strongly defend ourselves from his baseless claims in court.”
Google-parent Alphabet’s (ticker: GOOGL) stock was down 3.1%, but a quick glance around the market suggests it has more to do with Snapchat-parent
(SNAP) than the lawsuit. On Thursday, Snap reported 57% revenue growth in the third quarter, but gave a weaker-than-expected fourth-quarter forecast. It blamed the weakness on recent changes by Apple (AAPL) that make it more difficult to track iPhone users’ activity across apps and websites. That was taking a larger bite out of advertising revenue than it had expected. As a result, Snap stock has tumbled 26% in Friday trading, while other online advertisers have gotten hit too.
(FB) has dropped 5.6%, while
(TWTR) has fallen 4.6%, and
(PINS) has slumped 5.6%.
The Snap news is an incremental negative for Google’s advertising business, too, and investors are discounting the shares on Friday for a potentially weaker third quarter for the search giant. Alphabet reports on Oct. 26 after the market closes.
But one more antitrust headline doesn’t really move the needle. Both in the U.S. and abroad, investigators are looking into Google’s antitrust and privacy practices. Those include the state AGs, the U.S. Department of Justice, and agencies of the European Union. Alphabet has already been hit by nearly $10 billion in fines globally in recent years.
That’s a big number, but essentially a rounding error for a company expected to do more than $250 billion in sales and to earn some $70 billion in 2021 alone.
Wall Street certainly isn’t all that worried about antitrust when it comes to Google. Some 94% of analysts covering Alphabet stock have a Buy or equivalent rating, according to FactSet. Their average rating is about $3,200, or close to 16% above current levels.
Previous lawsuits against Google and other large tech companies have been dragged out for years—and largely ended with narrow rulings that hardly affected any of the giants’ core businesses or profit machines. Congress hasn’t shown it can get its act together on meaningful antitrust actions regarding Big Tech, either.
“The history of Google, Facebook, and the other Big Tech companies we keep talking about in terms of antitrust is they come out, they listen, they might tweak things a little bit or write a check, and then they move on,” says Dan Morgan, a portfolio manager at Synovus Trust. “That’s how it has played out.”
Until proven otherwise and shown there will be an impact on these companies’ bottom lines, investors will continue to look past seemingly negative antitrust headlines targeting tech giants.
Write to Joe Woelfel at [email protected]