Alphabet (GOOGL) , Google's parent company, has found itself at a critical juncture.
Once synonymous with digital advertising dominance, the tech giant is now contending with competitive and regulatory pressures that threaten to stymie its growth trajectory.
The ongoing U.S. antitrust trial is shining a spotlight on Google’s alleged monopolistic practices, especially around its search engine, and could significantly impact Alphabet’s business model moving forward.
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The trial, the most significant challenge to the company’s dominance since the Microsoft antitrust suit in the late 1990s, centers on whether Google used its search engine dominance unfairly to block competitors and lock in users.
The DOJ claims Google’s exclusive agreements with smartphone manufacturers — which made it the default search engine on billions of devices — have stifled competition.
Related: Analysts reset Alphabet stock price target before key September court event
For Alphabet, the outcome of this case could have far-reaching consequences. If the court rules against the company, it may be forced to change its business model, as the DOJ is considering breaking up Google.
An Oct. 9 filing outlines potential options, including requiring Google to sell the Android operating system, Google Play Store, or Chrome browser. The DOJ is expected to share a more detailed proposal on Nov. 20, as reported by Bloomberg.
What to know ahead of Alphabet's Q3 earnings
Alphabet will report Q3 earnings on Tuesday, Oct. 29, after the market closes.
Three months ago, Alphabet posted solid Q2 earnings, beating Wall Street expectations on revenue and earnings. The company earned $1.89 per share, higher than analysts' forecast of $1.84. Revenue of $84.74 billion also surpassed the $84.19 billion expected.
Google's advertising segment, which includes Google search and YouTube ads, remains the largest contributor to total revenue. This segment brought in $64.6 billion for the quarter, representing 76% of total revenue and showing 11% year-over-year growth.
Related: Analysts update Alphabet stock price target after AI event
YouTube is facing challenges. Revenue from YouTube ads was $8.66 billion, falling short of analysts' anticipated $8.93 billion.
Digital video advertising is becoming more saturated, and Alphabet’s ability to retain its leadership in this segment is being tested by aggressive competition.
The launch of Amazon’s Prime Video Ads earlier in 2024 has created more competition for Alphabet in the video ad space, potentially limiting YouTube’s growth prospects moving forward.
Alphabet’s other key segment, Google Cloud, was a bright spot in the quarter, generating $9.55 billion in revenue, representing a 22% year-over-year growth.
The company has been investing heavily in its cloud infrastructure, aiming to catch up with Amazon Web Services and Microsoft Azure, which currently lead the market.
“We are at an early stage of what I view as a very transformative area and in technology, CEO Sundar Pichai said during the July earnings call, “the risk of under-investing is dramatically greater than the risk of over-investing.”
The cloud segment accounted for 12.2% of total revenue and grew 28% year-over-year to $10 billion in Q2.
Analyst unveils Alphabet stock price target before earnings
Wedbush sees limited upside for Alphabet this quarter, thefly.com reported.
The firm notes that mixed feedback from its Q3 Digital Advertising Survey suggests challenges for Alphabet. Recent data from Skai also points to slowing growth in Google Search.
Additionally, YouTube may face competitive pressure from the launch of Prime Video ads and the growing inventory of digital video ads.
More Tech Stocks:
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Wedbush expects both Google Search and YouTube Ads to grow by 11.5% year-over-year, just below consensus expectations of 11.9%.
The firm maintains an outperform rating on Alphabet's stock with a price target of $205.
Alphabet stock closed at $162.72 on Oct 24 and is up 16.49% year-to-date, while the Nasdaq Composite has gained more than 22%.
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