At this writing, Alphabet (NASADAQ:GOOGL, NASDAQ:GOOG) stock is at $2,847. That’s a market cap of $1.89 billion, a price/earnings ratio of nearly 31. Over the last year shares are up 80%.
While China’s cloud stocks, such as Alibaba Group Holding (NASDAQ:BABA), continue to make new lows, America’s Cloud companies keep climbing. Facebook (NASDAQ:FB) is near an all-time high. Microsoft (NASDAQ:MSFT) is worth over $2 trillion. Apple (NASDAQ:AAPL) is almost halfway to $3 trillion.
But there’s a cloud on the horizon. Her name is Lina Khan. The new head of the Federal Trade Commission (FTC) wants to treat the American cloud companies like China is treating theirs. Jonathan Kanter, nominated to head the Department of Justice antitrust division, has many of the same views.
What Did Google Do?
Most attention is being paid to Facebook. Khan is due to amend her agency’s complaint against Facebook on Aug. 19. The agency filed suit to break up Facebook last year, and a judge ruled it lacked evidence in June, giving the agency a chance to amend the complaint.
If Khan wants to make an antitrust case, Google offers more evidence.
Google has been using profits from its search engine to buy market share in cloud infrastructure. It’s clear from the company’s quarterly reports. Google Cloud lost $974 million in the first quarter, and $591 million in the second. This helped its cloud revenue grow 66% from the previous year. Amazon’s (NASDAQ:AMZN) AWS had operating income of over $4 billion in the last quarter.
Google is even more aggressive in streaming. It is engaged in a running battle with Roku (NASDAQ:ROKU) for the streaming market. Here, too, it is buying market share, using profits from search and YouTube advertising to seek control of the market.
What Might Khan Do?
In a now-famous 2017 Yale Law Review article targeting Amazon, Khan described a new approach to antitrust enforcement. Specifically, she sought to act if companies “can cross-leverage market advantages across distinct lines of business.”
That’s precisely what Google is doing. It is leveraging its dominance in search to buy market share in cloud. It’s using its control over advertising with YouTube to seek control of streaming technology. Khan’s paper indicates she would target predatory pricing and vertical integration, arguing “policy should promote not welfare but competitive markets.”
Under Khan, the fact that the cloud companies have created free services, with a global scale, isn’t a defense against a breakup. To be safe from the antitrust police, Google should remain a search company. Amazon must charge customers its full costs, and Facebook should be kept from expanding beyond its original software platform.
All this goes against a generation of American antitrust policy. Predatory pricing is seen as a bargain under current doctrine. Extending monopoly powers into other markets is considered natural.
But, after allowing this winner-take-all attitude to flourish for a decade, China has gone in Khan’s direction. American investors have run away from China’s enforcement actions. The value of Alibaba is down 43% since China’s government began moving against it last October.
The Bottom Line for GOOG Stock
China’s actions seem abrupt only because China’s government could turn its policy on a dime. But its actions seem aimed at the same goals as Khan.
American investors have yet to react to Khan’s moves. Instead, they have bid up the value of Apple, Microsoft, Alphabet, Amazon and Facebook, to nearly $9 trillion.
Because Amazon was specifically mentioned in Khan’s article, its stock has been discounted, down 10% since late July. GOOG stock has barely moved.
But if the new policy can gain traction before judges, Amazon and Facebook won’t be its only targets. Investors need to be aware of that.
On the date of publication, Dana Blankenhorn held long positions in AMZN, MSFT, AAPL, and BABA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.
