According to a report on Friday, the US Department of Justice (DOJ) proposes that Google divest the Chrome web browser to restore competition to the online search market.
This move will profoundly impact Sundar Pichai’s Sundar Pichai-run company’s business model and stock valuation.
Shares of Alphabet, Google’s parent company, declined more than 4.56 percent on Thursday (US time), marking their steepest decline since January 2024. The drop wiped out over $120 billion in market capitalization, dragging Alphabet’s valuation below the $2 trillion threshold.
According to Murthy Grandhi, a company profiles analyst at GlobalData, Google Chrome accounts for nearly two-thirds of the global browser market. Thus, the implications of a forced sale for Alphabet’s business model and stock valuation are profound. According to reports, Chrome has a market valuation of $20 billion or so.
“It is more than just a browser — 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,” Grandhi added.
For the nine months ended September 30, Google generated an estimated $192 billion 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. 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,” said Grandhi.
As of September 30, the company spent $36 billion in research and development, which is 14.2 per cent 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. A divestiture of Chrome might lead to a more competitive browser market, fostering innovation and offering consumers more choice,” said Grandhi.
It could also pave the way for similar regulatory actions against other tech giants, prompting the sector to adapt to heightened scrutiny.
As of September 30, 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. In the short-term, investors can expect heightened volatility as the market reacts to developments in the case,” according to the report.
Over the long-term, Alphabet’s ability to adapt its business model, capitalize on emerging technologies, and maintain investor confidence will determine its resilience, it added.
