Company / Analytics

Analytics, 24 June 2021

What to know about EU’s probe of Google

Google’s advertising unit faces its biggest anti-competitive regulatory threat, as EU regulators plan to formally investigate whether Google’s lucrative digital advertising business has breached EU competition rules. Google made $147 billion in revenue from online ads last year, more than any other company in the world, and adds accounts for the bulk of sales and profits.

The company is also under scrutiny by regulators in France, Britain, and the United States on various anti-trust issues.

Google’s European Troubles

European regulators plan to investigate Google marks new front. EU competition enforcer has in the last decade fined the company more than 8 billion euros ($9.8 billion) for blocking rivals in online shopping, Android smartphones, and online advertising.

A major focus of the investigation will be on Google’s practices in the advertising technology supply chain. The probe will assess whether the company distorts competition by restricting the ability of rivals to access user data that the company itself uses in its own products. Additionally, the probe will look into potential restrictions Google has placed on rivals trying to serve ads on YouTube.

According to media reports, the probe would be deeper than that concluded by French antitrust regulators last week.

Ads contribution to Google revenue

Google made $147 billion in revenue from online ads last year, more than any other company in the world. And Ads on Google properties, including search, YouTube, and Gmail, account for the bulk of sales and profits.

About 16% of revenue came from its display or network business, in which other media companies use Google technology to sell ads on their website and apps.

Both units are under fire from regulators. In the US, the Justice Department, joined by some states, sued Google last year for abusing its dominance in search ads. In another lawsuit, a group of states led by focused on anti-competitive behavior on the network side of the house.

In Europe, last week Google reached a $268 million settlement with France, in addition to other commitments over similar allegations related to the network business. The unit must also work closely with Britain’s competition regulator on upcoming software changes as part of a settlement reached days later.

The Commission notes that many publishers depend on online ads to fund the free content they offer consumers. Therefore, it says fair competition is important. The authority did not say how long it would take to complete the Google probe. Instead, it said factors such as the complexity of the case, and the extent to which the companies being investigated cooperate, will determine the duration of an antitrust probe.

Analysts note that a new EU inquiry could end up targeting all of Google’s ad empire. Market researcher eMarketer expects Google to control 27% of global online ad spending this year, including 57% for search ads and 10% for display.

Google is a tech giant that advertisers cannot avoid. Various Google software plays a role in so many facets of the market. Advertisers are concerned that Google takes advantage of the dependence buyers, sellers and intermediaries have on it to extract high fees from all sides and block rivals from fair competition.

In a questionnaire sent to Google rivals and third parties earlier this year, the EU watchdog asked if advertisers receive rebates when they use Google intermediaries which allow advertisers or media agencies to buy advertising inventory from many sources.

How did shares react?

Monness analyst Brian White reiterated a Buy rating with a price target of $3,000 on Alphabet stock. The analyst’s price target suggests 22.62% upside potential.

“Alphabet remains the highest-value target of a growing bipartisan effort to rein in Big Tech. Despite these headwinds, we believe Alphabet is well-positioned for a continued recovery in digital ad spending this year,” noted White.

The consensus among analysts is a Strong Buy based on 28 Buys and 2 Holds. The average Alphabet analyst price target of $2,785.97 implies 13.87% upside potential to current levels.

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