Google's Legal Challenges: A Storm in a Teacup?

The recent legal developments surrounding Google have made headlines but have hardly shaken Wall Street so far. After a California judge required Google to open its Android operating system to third-party app stores, the Department of Justice is considering an even more drastic measure: a possible breakup of Google's business segments, such as the Chrome browser or Android, to challenge its dominance in the search market. Interestingly, the markets reacted with only a slight frown. Google's stock price fell by less than 2% on Wednesday following the Department of Justice's recommendation. This restrained decline is partly due to the slow pace of legal proceedings. Analysts express doubts that such drastic measures could be implemented, as separating Google's intertwined business units poses immense challenges. Wedbush analyst Dan Ives notes that despite the alarming headlines, the likelihood of a breakup is minimal. Investors are instead focusing on Google's growth goals, including cloud services, AI initiatives, and its advertising empire. In a 32-page proposal, the Department of Justice outlines various ways to address Google's monopoly position in the search area. While radical proposals envisage a breakup, easily implementable alternatives appear more pragmatic to many. However, investors are waiting for further details before taking decisive steps. Analyst Angelo Zino from CFRA Research notes that Google's current valuation largely reflects the regulatory risks, yet the markets are seeking more clarity. Google's stock performance since the start of the year lags behind some of its main competitors, suggesting that regulatory risks may already be priced in. A softer regulatory measure could even act as a catalyst for a rise in the stock price. For November, Wall Street is now expecting more details from an upcoming submission by the Department of Justice. Until then, investor attention will be focused on the upcoming quarterly results. Google also has the opportunity to respond legally, describing the government proposals as 'radical and comprehensive.' A fundamental change to Google Search, as proposed by the government, seems unthinkable for the company.