Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) stock fell in morning trading following a fine by the European Union (EU). This becomes the latest in a series of penalties levied by this regulatory body. It also indicates that GOOGL stock could experience the effects of more levies in the future.
However, the penalty appeared to have little effect on GOOGL. More importantly, in an ironic twist, this regulation may become a benefit to holders of Google stock in the end.
Google and the EU
The EU announced fines on Google’s parent company Alphabet yet again. For the first time, the penalties came from the General Data Protection Regulation (GDPR). This is a relatively new body of regulation regarding data privacy in the EU. GDPR aims to give individuals more control over their data privacy.
Under these rules, France fined Alphabet €50 million ($56.8 million). French regulators allege that Alphabet failed to comply with GDPR when new Android users set up the ecosystem on new smartphones.
Although it sounds serious, this specific levy looks like a non-event from an equity perspective. GOOGL stock fell by about 1% in morning trading following the news. GOOGL holds a cash hoard of over $106 billion. So, the fine amounts to pocket change on a relative basis.
It also pales in comparison to the €2.4 billion ($2.73 billion) fine paid in 2017 and an additional levy of €4.3 billion ($4.88 billion) last year.
Given Google’s previous troubles with the EU, more fines could likely come. However, as strange as this may sound, prospective buyers may want to welcome a more severe penalty.
The more obvious reason involves the GOOGL stock price. Yes, such news will likely lead to a selloff. New buyers can then pay a lower price for the equity. However, the largest benefits will more than likely come from the regulations themselves.
The Benefit of Regulation
The dirty secret about regulation is that it often bolsters companies it attempts to discipline. Burdensome regulations usually mean burdensome regulatory compliance costs.
Alphabet and firms such as Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), and Amazon (NASDAQ:AMZN) will absorb the costs with relative ease. However, small firms generally cannot afford such an expense. As a result, they often go out of business or never come into being. Hence, these costs make it less likely that an upstart will come from nowhere to challenge Google.
For now, Google faces yet another fine. Since it did not learn any lessons from more hefty EU penalties in previous years, I would expect to see more fines for Google in the future.
From an investor perspective, I think any serious (meaning €1 billion-plus fines) will amount to sale prices on GOOGL stock. It will also change Alphabet’s behavior to an extent. Eventually, Google will more than likely comply with regulations to stay in business. Still, with GDPR tamping down much of its competition, the EU will more than likely reward Google more than it punishes it.
The Bottom Line on GOOGL Stock
Investors in GOOGL should welcome rather than resist the fines levied by the EU. On the surface, most companies want to avoid troubles with regulators. They also lead to increased costs due to the penalties they might have to pay.
However, these fines offer unexpected benefits to holders of GOOGL stock. The more obvious advantage comes from the chance to buy GOOGL at a lower price for a time. More importantly, the tighter rules make it more difficult for an upstart to challenge Google. This should lead to both less competition and more profit which will increase Google stock in the long run.
Hence, rather than looking at this fine as a cost, investors should see it as a chance to earn more profit at a lower cost.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.