Chatter from regulators about breaking up Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) is nothing new. And fresh encouragement from activists to do the same isn’t exactly surprising: splitting the company up would “unlock value” in the shares of Google stock they own. It would also mean it takes shape on the company’s terms rather than regulators’ terms.
So far, though, Larry Page and Sergey Brin — who collectively hold more than half of all shareholder voting power — have resisted.
The prospect resurfaced on Wednesday during the annual meeting of Google stock owners, with a proposal for a break-up being put up for a vote. Shareholder efforts to tear the company apart into its basic components failed miserably, of course. Page and Brin simply don’t want to split the company up, at least not yet. Most of the remaining minority doesn’t want to either.
However, a break-up may actually be the inevitable even if not immediate outcome. It might also be for the best. If you look closely, the underpinnings of GOOGL stock have changed.
A Baby Step Is Still a Step
Alphabet breadwinner Google has been a juicy political target for years. Politicians and an increasingly concerned public have called out the company for its size, pervasiveness and importance. However, Washington’s threats have largely amounted to grandstanding to drive home a point rather than to make actual regulatory changes.
If you repeat the narrative often enough, though, it becomes more palatable and more likely.
Pushing for a breakup of Alphabet stock realistically was unthinkable as recently as a year ago. But with influential critics hammering home the idea, it has finally prompted serious discussion about tech’s overreaching tentacles.
The evidence? Earlier this month, the Justice Department and the Federal Trade Commission officially determined which would investigate particular companies. The Justice Department will scrutinize Apple (NASDAQ:AAPL) and Alphabet for potential antitrust actions. On the other end, the FTC will examine Facebook (NASDAQ:FB) and Amazon.com (NASDAQ:AMZN) and their practices.
The divvying up of those duties offers a glimmer of insight as to which direction the legal arguments are heading. Antitrust laws are primarily meant to quell unfair pricing schemes. And in this particular context, the FTC’s responsibility is ensuring business competition is allowed to thrive. In other words, the FTC’s probing of Facebook and Amazon suggests the concern is that both may be quelling competition unfairly. The DOJ’s interest in Alphabet and Apple implies consumers have been financially harmed.
It’s action, even if it will prove ultimately irrelevant given current laws that were never written with organization’s like Facebook or Alphabet in mind.
Meanwhile, on Capitol Hill…
The DOJ’s and FTC’s work will most likely come up with little. Even what sticks could take years to bear the fruit of change. On the surface, that’s great news for GOOGL stock.
Still, the action underscores another shift in politicians’ views of the downside of huge tech organizations. Even without fully understanding their business models, both Republicans and Democrats largely agree that they don’t like the status quo. Specifically, they oppose the one-sided influence that big tech firms leverage.
Democratic House Speaker Nancy Pelosi wrote earlier this month, “Unwarranted, concentrated economic power in the hands of a few is dangerous to democracy – especially when digital platforms control content. The era of self-regulation is over.”
It’s a message that largely echoes the sentiment of other Democrats.
Republican Senator Ted Cruz commented during a recent Judiciary Committee meeting on the matter, “There are many on this committee, including myself, concerned about potential anticompetitive conduct from Google.”
Conservatives aren’t crazy about impeding the outsized influence of just a few tech firms. Just the same, you won’t find too many Republicans defending their power.
Rare Political Consensus Casts Cloud GOOGL Stock
It’s a scenario that sets the stage, finally, for legislative change that could do what the FTC and the DOJ will likely be unable to meaningfully do. Additionally, it’s an element that could meaningfully affect Google stock.
“If we want relief and we want it in our lifetime, I don’t think antitrust is the way to go,” says Hal Singer, a senior fellow at George Washington University’s Regulatory Studies Center. His suggested remedy is Congressional action that gives the FTC new and more authority. This involves protocols to create and enforce rules that apply specifically to web-based and web-centric players.
And Singer’s far from convinced a breakup would do much good anyway. He commented, “If you had five Baby Facebooks, they would still have an incentive to steal.”
That makes legislative action a faster solution for Washington. More critically, it’s the one that current and prospective Google stock owners should fear the most.
To that end, the public — as in voters — are also increasingly fed up with big tech. A recent poll indicated that more than 40% of consumers don’t trust major technology players with their personal data. If nothing else, clear and high-profile legislative action could prove politically expedient.
Bottom Line for Google Stock
There’s the rub. Action that is fair or unfair is now irrelevant. Change is coming. Even if nobody knows what that change may look like or when it may take shape, the rhetoric has morphed into an irresistible force.
Breaking Alphabet up may not be the most desirable option to be sure. But it may just be enough to appease Washington DC’s lawmakers from imposing more heavy-handed changes later. It may be a split for visual effect only: we might see a situation with all the various pieces still working in unison, even if reporting results separately. It may be enough to prompt Washington to call the dogs off altogether, however.
In that light, the activists who were clamoring for a break-up on Wednesday arguably had the right idea.
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