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Reality check

26 Oct 2021 By Gina Chon

It has been easy for investors to forget about Alphabet’s antitrust boogeyman. Google’s parent has been riding high on the economic recovery, with third-quarter revenue jumping by 41%. Its stock has outperformed rivals while Washington anger is trained on Facebook. But it’s the search engine that is more vulnerable to regulatory probes.

Alphabet’s biggest divisions are firing on all cylinders. Strong advertising sales spurred a sales increase of 44% at Google search and 43% at YouTube, while its cloud unit posted a 45% top-line growth. Its shares have gained about 70% over the past year, compared with around 43% for Microsoft and 15% for Facebook.

Google has also faded a bit from the D.C. spotlight. A Facebook whistleblower’s congressional testimony earlier this month has spurred renewed calls for boss Mark Zuckerberg to testify. Documents provided by the former employee produced another flurry of media stories over the past few days.

But the $927 billion social network been has harder to pin down on an antitrust front. A U.S. Federal Trade Commission lawsuit against Facebook is overly broad and had to be amended after a judge poked big holes in its argument.

Google, on the other hand, operates in more defined markets so partly as a result faces more targeted allegations that have more potency. On Friday, an unredacted version of an antitrust lawsuit by state attorneys general focusing on ad technology revealed fresh details about alleged anti-competitive behavior.

Because of Google’s dominance in digital marketing, it can charge up to four times the fees of other online advertising exchanges while its ad-buying tools win more than 80% of the auctions hosted on its network, according to the lawsuit. One senior employee compared it to Goldman Sachs or Citigroup owning the New York Stock Exchange.

There’s also the Justice Department crackdown against Google’s dominance in search. And federal prosecutors are considering an ad-tech lawsuit similar to the one filed by state watchdogs. In Europe, Google is appealing a $5 billion antitrust fine. Alphabet may be marching along nicely for now, but there are multiple dangers lurking in the wings to trip up unsuspecting investors.

 

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