The veteran trader looks at the impact of the potential Google breakup

Breaking up is hard to do and, in Google’s case, could be very expensive.

Federal regulators have slammed search engine giant Alphabet’s parent company (GOOGLE) on October 8.

Related: Google breakup on the table — What’s next in the DoJ case

The US Department of Justice said in a filing that it could ask courts to separate Google’s core search business from other Google products — such as the Android mobile operating system, the Chrome web browser and the Google Play app store — because they combine to form a Google monopoly.

Don’t miss the move: Subscribe to TheStreet’s free daily newsletter

The remedy, according to the DOJ, “would prevent Google from using products like Chrome, Play and Android to advantage Google search and Google search-related products and features — including access points and emerging search features like artificial intelligence — over rivals or we come in.”

“Google’s anticompetitive conduct resulted in interconnected and pernicious harm,” the DOJ said in its filing, according to NPR.

The markets controlled by Google “are indispensable to the lives of all Americans, whether as individuals or business owners, and the importance of effectively unlocking these markets and restoring competition cannot be overstated.”

Lee-Anne Mulholland, Google’s vice president of global affairs, wrote in a blog post that “this is the beginning of a long process, and we will respond in detail to the DOJ’s final proposals as we present our case in court next year.”

Sundar Pichai, CEO of Google’s parent company Alphabet

Bloomberg/Getty Images

Google executive warns of ‘unintended consequences’

“However, we are concerned that the DOJ is already flagging claims that go far beyond the specific legal issues in this case,” she said.

Mulholland said the case is about a set of search distribution contracts.

Related: Analysts slam search parent Google’s price target, antitrust concerns

“Instead of focusing on that, the government appears to be pursuing a broad agenda that will impact numerous industries and products, with significant unintended consequences for consumers, businesses and American competitiveness,” she said.

The filing follows an August ruling by U.S. District Judge Amit Mehta, which found that Alphabet violated U.S. antitrust law in its search activity.

“After carefully considering and weighing the testimony and evidence of the witnesses, the court reaches the following conclusion: Google is a monopolist and has acted as one to maintain its monopoly,” Mehta wrote in his opinion.

Shares of Alphabet were down nearly 2% at last check. The stock is up 15.3% year-to-date and up 17% from a year ago.

Analysts at JPMorgan said they believe the Justice Department’s remedies framework in the Google search commercial agreements lawsuit is largely in line with expectations, according to The Fly.

However, the DOJ’s proposed final remedies won’t take place until Nov. 20, and as a result, the initial framework is somewhat broad and unspecific in terms of exact remedies, the firm said in a research note.

JPMorgan says that while there are no major surprises, the preliminary framework presents a main risk and suggests that structural changes or spin-off proposals are possible for Alphabet.

However, the firm doesn’t think the high-level framework is changing much for stocks in the near term.

Wall Street’s focus will shift to earnings over the next few weeks and then to the DOJ’s proposed final remedies on Nov. 20, according to JPMorgan, which maintains an overweight rating on the stock with a $208 price target.

DOJ antitrust action against Google appears ‘overblown’

This has been a tough week for the search engine giant.

On October 7, U.S. District Judge James Donato in San Francisco ordered Alphabet’s Google to overhaul its mobile app business to give Android users more options to download apps and pay for in-app transactions, following the jury’s verdict from last year for the “Fortnite” maker. Epic Games, Reuters reported.

More tech stocks:

• Analysts update price target on Meta shares in light of Q3 earnings
• Analyst updates Tesla stock price target ahead of key robotaxi event
• Analysts update outlook for Nvidia’s Blackwell chips amid AI boom

Donato’s order said that for three years Google cannot prohibit the use of in-app payment methods and must allow users to download competing third-party Android platforms or app stores.

In a statement, Google said it will appeal the ruling that led to the injunction in the 9th U.S. Circuit Court of Appeals in San Francisco and will ask the U.S. courts to stay Donato’s order pending the appeal.

TheStreet Pro’s Chris Versace discussed the DOJ ruling in his Oct. 9 column, saying “Google will likely appeal, and that effort could drag out the process for years.”

“In the short term, there is an overall risk, but from an operational perspective at Google, there should be little or no impact,” he said, adding that the government’s proposed actions seem “more than a little over the top.” .

Versace noted the DOJ’s suggestion to limit or prohibit default agreements and “other revenue-sharing arrangements related to search and search-related products.”

“This would include Google’s search position agreements with Apple (AAPL) iPhone and Samsung devices,” Versace said. “If this were to happen, it could mean Apple would lose billions in ‘other revenue.’

In 2022, Google has paid Apple between $18 billion and $20 billion each year for the past few years to remain the default search engine for its Safari browser.

“This is a significant chunk of Apple’s annual research and development spending, and if this expense offset is eliminated, Wall Street may have to lower future EPS expectations,” Versace said. “But even here, it’s not likely to be something that will unfold in the next year or two.”

He reminded readers that the antitrust case against Microsoft (MSFT) it took the better part of a decade before an agreement was reached.

Versace said he has some room to add to his Google position in TheStreet Pro’s portfolio, “but with the September CPI and PPI reports due later this week, we’re inclined to see if GOOGL shares hold current levels of support between $159 and $162 before making any moves.”

“If the inflation reports don’t show as much progress as the market expects or otherwise add to the thinking that the Fed may cut interest rates less in the coming months than expected,” he said, “market reaction may mean we can get some GOOGL. shares at an even better price.”

Related: The 10 Best Investing Books According to Our Stock Market Pros