Alphabet Inc (NASDAQ:GOOGL) is not Facebook Inc. (NASDAQ:FB) but the contagion that hit the House of Zuck could be about to hit the Google Guys. While shares of Alphabet stock are down just 8% so far this year, with Facebook down a whopping 17%, the same dark forces that have enveloped Facebook are now coming for the search giant.
Those forces arrive as government distrust takes a quick turn into the courts and retaliates against market dominance with taxes designed to punish past sins. Google, known for its informal “don’t be evil” mantra, in the last decade, is increasingly seen as a malevolent force.
Jim Mellon, a British investor who admittedly got the fate of the Euro all wrong last decade, nevertheless is winning headlines today by calling both Alphabet and Facebook “ripe for the plucking.”
The Bad News
The surprise Appeals Court win of Oracle Corp. (NASDAQ:ORCL) over Google’s use of Java in making its Android operating system could cost Alphabet stock $9 billion in cash, or even more. Google can afford that — it listed over $100 billion in cash and short-term investments on its balance sheet at the end of 2017 — but it would let Oracle build out its own cloud network free and become a more formidable competitor.
While activists continue to #deletefacebook, or simply dial back their use of it, Google users are being offered detailed guides on making the search engine forget them (although it’s not really that difficult).
The knives are now out for everything else Google does. Android is being called a “poisoned platform,” as the Oracle decision means all Android developers could now be vulnerable to Oracle’s legal attack, including Amazon.Com Inc. (NASDAQ:AMZN) and Samsung Electronic (OTCMKTS:SSNLF). Google is reportedly working on a new mobile system dubbed “Fuchsia” to replace Android, but all that Android market share may now have to be re-won against Chinese, Korean, and American competition.
Google is also opening a home speaker battle it can’t win and being called its own worst enemy for abandoning good technologies once competitors find something else that works.
Europe, which has no reason to respect U.S. tech hegemony, has also now come up with a tax scheme that specifically targets U.S. tech giants by taxing them based on where users are, and recently hit Google itself with a $2.7 billion fine for favoring its own shopping services ahead of others.
Good News?
There is some good news. Analysts are recognizing that Alphabet stock’s Waymo division is well ahead in the self-driving car race. It may have completely autonomous “Level 5” technology ready for production this year. That could let it dominate a market estimated to be worth $126 billion in the next five years.
Unfortunately, Alphabet is already a $110 billion company.
The Bottom Line on Alphabet Stock
None of this is expected to hit the company’s top line — revenues of $24.29 billion, when the first quarter is announced May 3. In the near term, it won’t even hit Alphabet stock’s bottom line, which is expected to hit $9.27 per share for the quarter.
But the stock price, which opened at $1,011.63 on March 29, does not yet reflect these risks. Even take out its accounting for the Trump tax cut, which caused it to run a loss in the fourth quarter, and it is selling at a price-to-earnings multiple in the low 30s.
The storm clouds are rising against this company, in other words, and they’re still partying on the top deck.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.
