It’s official: The European Union is charging Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) with violating EU antitrust laws. Though the EU has been probing the Mountain View, California-based tech giant since 2010, the decision to file formal antitrust charges against Google could have dire effects on the GOOG stock price.
While it’s never a good time for regulators to hit you with a case, GOOG stock is already dealing with a number of other risks and pressures, and today’s EU antitrust charges against Google won’t help things.
With the strong U.S. dollar creating serious currency headwinds and capital allocation concerns prompting GOOG to tap former Morgan Stanley (NYSE:MS) CFO Ruth Porat as its own Chief Financial Officer, Google stock has underperformed the S&P 500 by 16 percentage points in the last year.
As an owner of GOOG stock myself, I hate to say it, but those lagging returns might not be behind us.
What the EU Antitrust Charges Allege
Specifically, regulators claim that Google “systematically positions and prominently displays its comparison shopping service in its general search results pages, irrespective of its merits.” If you read it over, that’s actually a fairly specific allegation concerning only GOOG’s online shopping results.
Though its scope is limited, the charges make an incredibly bold accusation that, if true, would disprove Google’s most fundamental competitive advantage and point of pride: that Google’s search results always display what’s most relevant to a user.
Disprove that, and GOOG loses credibility, clout and billions in market value overnight.
There hasn’t been an antitrust case with this much on the line since U.S. regulators brought antitrust charges against Microsoft Corporation (NASDAQ:MSFT) in 1998, accusing the Windows-maker of playing dirty in its efforts to drive users to its Internet Explorer browser.
The EU GOOG antitrust case poses an even more significant threat though, because it opens a Pandora’s box of additional potential investigations, especially if Google is found to be in the wrong.
For example, EU regulators are already keeping a close eye on how Google displays results in areas such as hotels, maps and flights, and launched a formal probe into whether GOOG uses the prominence of its mobile OS, Android, as leverage to force handset companies to pre-load Google’s own apps and software.
What They Mean for GOOG Stock
Google is the unquestionable leader in the European search engine market, commanding an estimated 90% market share. Microsoft’s Bing and Yahoo! Inc. (NASDAQ:YHOO) each scrap over the remaining crumbs and round out the top three slots, with each commanding between 2% and 3% of the total market.
In other words, GOOG has a lot to lose if European consumers fight back against a company perceived to be corrupt.
While Google doesn’t break out the specifics, investors know this much: as Google expands internationally, a lower percentage of its revenue comes from domestic operations. In 2014, just 43% of revenues came from the U.S., with “the majority of customers outside of the U.S. located in Europe and Japan.”
GOOG stock was flirting with breakeven on Wednesday at the time this article was written. It shouldn’t be.
As of this writing John Divine owned shares of GOOG stock and GOOGL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
