The Great Google Short? Alphabet (GOOG)
Image: Courtesy of Julia M Cameron, via Pexels
in Our Latest PodCast: Chaotic markets mask looming Issues at the World’s Biggest Search Engine
The Feds Ain’t Foolin’ With Trust Busting Google In case you’ve been distracted by current events, Alphabet CEO Sundar Pichai is under enormous regulatory pressure to restructure the company’s core search engine.
This past April, the U.S. Department of Justice prevailed in its second monopolization case against the search monolith. “This is a landmark victory in the ongoing fight to stop Google from monopolizing the digital public square,” said Republican Attorney General Pamela Bondi.
Why It Matters Breaking up Google is the rare issue where Democrats and Republicans actually agree.
The anti-monopoly case against Google started back in 2023. That’s when then-Attorney General Merrick B. Garland made Democratic sentiment clear. “Today’s complaint alleges that Google has used anticompetitive, exclusionary, and unlawful conduct to eliminate or severely diminish any threat to its dominance over digital advertising technologies.”
What’s the Upside? Google’s restructuring is happening in proximity to a White House that relishes roiling markets by distracting first and acting later. If current volatility is any indication, the ensuing chaos suppresses markets’ ability to price Google properly.
Who knows what it’s worth: A chaotic White House keeps markets from pricing an evolving Google properly. (Image: Deepanker Verma, via Pexels)
Here are the main ideas to understand:
It’s unlikely, but enterprise value could simply keep falling. Values peaked earlier this year, before skidding about 20% to a 52-week low in March. Anything lower would push the ticker below the 20-for-1 split levels of 2022. That is a valuation moat to cross; but it is possible.
Regardless, sentiment for Google will continue to erode. Sellers have outstripped buyers for the stock since the beginning of the year. It’s been a major story in India. During the recent Remedies Phase of Department of Justice hearings, Google's lead attorney, John Schmidtlein, testified that, "It's not clear to me how to fund all the innovation we do if we were to give all of it away at marginal cost."
Value-Sapping Volatility Could Be Google’s Hottest Product: Since 2024, changes in company value have been the most dramatic in its history. There was even a 9-month period when the operation actually shrank, relative to early 2022.
Go ahead, sound this chart out: “Starting in 2022, by percent change in prices, Google got smaller.” It actually happened.
Google is so big that it’s easy to forget how much can be gained or lost. Considering the shear enormity of Alphabet, the ideas worth considering almost wander off onto the horizon.
The enterprise is just a shade less valuable than all of Saudi Arabia. Even the smallest unexpected swing in the value of equities, options or operations could be a trader’s paradise among a full family of derivatives and other financial vehicles.
There’s a full $14.8 billion of long-term debt sitting on the company’s books. Fixed income will not be left out of the party. Even the tiniest shifts in credit worthiness, or investor sentiment, will alter bond pricing dramatically. Considering the inventory that’s being floated, that’s debt desk’s bonus of a lifetime.
The supply chain reach is beyond measure. The nonpublic operations that connect with Alphabet directly or indirectly are simply too many to rationally understand. Even the most basic research should yield privately held companies that will gain – or lose – from a changed Google. What would be a more knowable source of new value?
Bottom Line: Google is facing Google-scale challenges. The points-of-entry to exhume value from that shift are limitless. Delightfully so.