The EU’s $5B Ruling Won’t Trip Up Google Stock

Google is bigger than whatever fines and restrictions can be levied against it

It’s official, though not yet final. That is, the European Union’s antitrust regulators have levied a $5-billion fine against Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), but Alphabet can and will appeal the ruling.

Owners of Google stock may not want to get their hopes up, however. The decision looks and feels more like a message to big U.S. technology firms than a matter that’s been judged on its merits. It somehow seems doubtful that the appellant process’s overseers will see things in a different light.

To that end — and against a backdrop of similar EU antitrust rulings against Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and even Google (again) — an important philosophical question can no longer be ignored. Are the United States’ top tech firms just so big and powerful that this kind of pushback is inevitable (at least in Europe)?

Spoiler alert: The answer is “yes.”

What the EU Said

EU Competition Commissioner Margrethe Vestager explained on Wednesday, “Google has used Android as a vehicle to cement the dominance of its search engine. These practices have denied rivals the chance to innovate and compete on the merits.”

Namely, Europe’s business competition regulators don’t care for the fact that Alphabet requires Android smartphone makers to pre-install apps developed by and for Google. Moreover, EU regulators believe consumers have been harmed by Alphabet’s payments to phone makers in exchange for pre-installing Google as the default search engine.

In addition to the $5-billion fine — roughly 30% of the $16.6 billion the company’s earned over the course of the past four quarters — Vestager simply wants the company to stop employing tactics that point Android phone users in a Google-centric direction.

Alphabet has 90 days to comply or seek a stay before an appeal can be heard. The company didn’t even need 90 seconds to make a decision, though. It’s going to appeal.

Google CEO Sundar Pichai wrote in a blog post shortly after the fine was announced:

“Phone makers don’t have to include our services; and they’re also free to pre-install competing apps alongside ours. This means that we earn revenue only if our apps are installed, and if people choose to use our apps instead of the rival apps.”

Pichai added for good measure, “We intend to appeal.”

Competitors Had, and Still Have, Their Chance

Vestager went on to say on Wednesday:

“[Google’s] practices have denied rivals the chance to innovate and compete on the merits. They have denied European consumers the benefits of effective competition in the important mobile sphere.”

The claim doesn’t align with the evidence.

Pichai’s blog post further notes:

“A typical Android phone user will install around 50 apps themselves. Last year, over 94 billion apps were downloaded globally from our Play app store; browsers such as Opera Mini and Firefox have been downloaded more than 100 million times, UC Browser more than 500 million times.”

But is Vestager talking more about the platform than the apps themselves? Maybe, but even if that were the case, a recent survey performed by the EU Competition Commission indicates that 89% of its respondents believe Android and Apple’s iOS are legitimate competition to one another.

It’s also worth remembering the mobile phone market once included a mobile version of Microsoft’s Windows, and the mobile operating system from BlackBerry (NYSE:BB) — the original smartphone maker — is still around and being updated. The market spoke. It didn’t want the former at all, and it barely cares about the latter.

Indeed, a whole slew of smartphone operating systems have come and gone.

Let’s Call It What It Really Is

So how does the EU rationalize the decision? Vestager’s explanation is little more than philosophy, and a one-sided philosophy at that.

This isn’t about Google’s practices at all. This is about a continent that:

  1. Doesn’t have any major presence among the world’s top internet-tech names.
  2. Is increasingly in a trade war with the target companies’ home country.
  3. Has seen the effects of not keeping the information superhighway in check (Cambridge Analytica, political ads purchased by foreign governments, etc.).

It’s difficult to address those challenges directly, but it’s relatively easy to address them indirectly by putting pressure on the entities that provide the platform for potential abuses and disparity.

It’s not as if we haven’t seen it before. In 2013, the European Union fined Microsoft for pre-bundling Windows with its Internet Explorer.

Google and Facebook (NASDAQ:FB) jointly face more than $8 billion in penalties by European regulators for requiring consumers to consent to having their personal data used in exchange for using the free services offered by each.

Apple has begun paying the $15 billion the EU says it owes Ireland in taxes, even though Ireland itself says the iPhone maker doesn’t owe it, and the country doesn’t want it.

It’s autocratic control of an aspect of society that blurs the lines between consumerism, politics, competition, regulation and fairness.

Bottom Line for Google Stock

The good news for owners of Google stock is that the fine doesn’t really matter. The company’s got more than $120 billion in the bank and can afford to pay the bill if the appeal doesn’t pan out. The bad news is that this is the new norm for mega-companies like Alphabet, even though it’s not exactly “new” anymore.

Even though he was talking about his employer at the time, the premise still applies to Alphabet’s Google. That is, back in 2016, Apple’s general counsel Bruce Sewell said of the tax being imposed on the company, “Apple is a convenient target because it generates lots of headlines.” Google is this year’s convenient target. Any large tech firm could be the next convenient target.

Still, targeted or not, few think the fine and the mandated changes will ultimately crimp the value of Google stock.

UBS analyst Eric Sheridan is one of those pros that isn’t concerned. He wrote on Wednesday:

“While the ruling contains a # of restrictions on pre-installed apps, we think it is unlikely to slow/deter the download/usage of Google’s mobile app ecosystem (e.g., in the Apple App Store, Google has 9 of the top 50 apps despite no relationship with the underlying OS). In general, we think investors will react neutral to positive to this outcome.”

The fact that Google stock wasn’t tripped up by the news says investors more or less feel the same way.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.


Article printed from InvestorPlace Media, https://investorplace.com/2018/07/the-eus-5b-ruling-wont-trip-up-google-stock/.

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