The US Department of Justice (DOJ) has proposed that Google divest its Chrome web browser to restore competition to the online search market.
Murthy Grandhi, company profiles analyst at GlobalData, comments” With Google Chrome accounting for nearly two-thirds of the global browser market, the implications of a forced sale for Alphabet’s business model and stock valuation are profound.
“It is more than just a browser – it is a linchpin in Alphabet’s ecosystem, connecting users to services such as Gmail, Google Drive, and YouTube. Chrome generates substantial ad revenue by driving traffic to Google’s platforms and collecting user data to enhance its advertising algorithms.
“This central role underscores why the DOJ’s proposed action could disrupt Alphabet’s revenue streams and strategic operations. For the nine months ended 30 September 2024 alone, Google generated an estimated $192 -illion in earnings from Google advertising.
“If forced to sell Chrome, Alphabet would lose a critical channel for driving traffic to its search engine and services,” Grandhi says. “However, the company could leverage this challenge as an opportunity to accelerate diversification and innovation in other high-growth areas such as artificial intelligence (AI) and cloud computing.
“As of 30 September 2024, the company spent $36 billion in research and development, which is 14,2% of its revenue ($253,5-billion). In addition, Alphabet’s diverse portfolio, spanning hardware, autonomous driving technology, and other ventures, serves as a hedge against disruptions in its core advertising business.
“By continuing to expand into emerging markets and technologies, Alphabet can reduce its reliance on any single revenue source.
“Beyond Alphabet, the DOJ’s actions could set a precedent for addressing monopolistic practices in the tech industry,” Grandhi adds. “A divestiture of Chrome might lead to a more competitive browser market, fostering innovation and offering consumers more choice. It could also pave the way for similar regulatory actions against other tech giants, prompting the sector to adapt to heightened scrutiny.
“Analysts highlight that while regulatory measures increase compliance costs and barriers to entry, they often favor established players like Alphabet, which possess the resources to adapt. Alphabet’s financial health, coupled with its capacity for strategic pivots, positions it to withstand the regulatory pressures better than smaller competitors. As of 30 September 2024, the company reported cash and cash equivalents of $19,9-billion.
“As the DOJ intensifies its scrutiny, Alphabet faces both immediate challenges and long-term opportunities” Grandhi says. “In the short-term, investors can expect heightened volatility as the market reacts to developments in the case.
“Over the long-term, Alphabet’s ability to adapt its business model, capitalise on emerging technologies, and maintain investor confidence will determine its resilience.
“The outcome of this regulatory push will not only shape Alphabet’s future but could also transform the broader tech industry.”