Sometimes the most noteworthy market events take place after trading hours. One instance of this is when, on May 15, Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) stock coughed up the day’s gains and more after the regular trading session had ended.
It was an unexpected and unpleasant end to an otherwise upbeat day for GOOG stockholders. And it wasn’t just some mysterious hedge-fund “whale” placing a massive sell order to take profits. There was a catalyst behind the selloff, and its ramifications could persist for a while.
To make matters worse, the catalyst involves nothing less than the United States government. It’s usually not a great idea to fight against the government, but Alphabet and its stakeholders could be mired in a battle they’d rather not be involved in.
The Hammer of Justice Comes Down
So, let’s get down to the nitty-gritty. A real barn burner of a report states that the U.S. Justice Department is likely planning to file an antitrust lawsuit against Google, which is owned by Alphabet. This could happen as early as this summer.
And it just gets worse from there. A group of U.S. state attorneys, led by Texas Attorney General Ken Paxton, are also likely to file antitrust suits against Google. We can expect these actions to transpire in the fall.
Thus, Alphabet will probably have to face litigation at the federal level as well as from a number of states. The primary focus of the lawsuits will likely be Google’s absolute dominance in the online advertising market.
Whether Alphabet is, in fact, engaging in anti-competitive practices is debatable. As dispassionate investors, however, it’s not our job to play judge and jury. We have to trade what we see, and it’s fair to say that we’re looking at a real mess here.
It’s interesting how industry dominance can be a double-edged sword. In November of last year, it was reported that over 90% of large publishers were using the Google ad server known as DoubleClick for Publishers.
Perhaps that level of niche dominance helped GOOG stock above $1,300 in November and eventually above $1,500. The spread of the novel coronavirus pushed the stock price down temporarily. But with the newly revealed regulatory issues, the shares could remain under pressure for weeks or even months.
Regulators on the War Path
Investors might wonder who is going to cause more problems for Alphabet: the federal regulators or those of the individual states? Unfortunately for GOOG stockholders, it appears that the answer could be “all of the above” as the regulatory process is not a quick one.
Still, there may be clues as to the temporal parameters of the legal process. For instance, U.S. Attorney General William Barr offered a potential time frame when he stated, “I’m hoping that we bring it to fruition early summer … And by fruition I mean, decision time.”
Paxton, meanwhile, hinted at a more extended timeline for the states’ litigation while also suggesting that the process is already in motion. “We’ve issued [civil subpoenas] to Google and impacted third parties. We hope to have the investigation wrapped up by fall … If we determine that filing is merited we will go to court soon after that,” he elaborated.
Through a spokesperson, Google (and therefore, indirectly, Alphabet) provided a rather noncommittal response to the antitrust allegations. The gist of Google’s official response is that the company is engaging with the federal and state investigations.
To “engage” suggests an openness to negotiation and perhaps a settlement of some sort. No matter what the outcome may be, there’s an extremely high chance that it will cost Alphabet a whole lot of money.
And there’s an equally high probability that Alphabet’s legal woes will be reflected in the price of GOOG stock, at least in the short term.
The Takeaway on GOOG Stock
Does all of this mean that investors need to unload GOOG stock immediately? Certainly not, but just be advised that almost nothing in the regulatory domain is fast or simple.
If that’s not something you’re prepared to deal with, then a long position in the stock probably isn’t right for you at the moment.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.