Google is already down $20/share from its all-time high of $757 on the news, and the question for investors is how bad things are about to get?
There are two pieces to the complaint:
- Google is said to disadvantage major companies in key online verticals offering comparison shopping services.
- Google has kept confidential data that might let advertisers compare its rates with those of rivals like Microsoft Bing and Yahoo.
These actions are just business when companies are of the same relative size and strength. With Google holding much more than half the market for search within these jurisdictions, they become questions for the government.
How bad this gets depends a lot on how Google reacts. The best thing it could do, from a financial perspective, is give major sites better placement in search results, based on the size of those competitors. Just as the company has a "paid search" link, in a separate color, it could offer a "directory" link, also in a different color, on its search results. Similarly, the advertising complaint could be handled by a release of data.
Of course, competitors are unlikely to be happy about such an outcome. They want the FTC to not only formalize a consent decree, but to hit the company with billions of dollars in fines covering the impact of past actions, fines designed to reduce its huge financial advantage over its rivals.
Even a $1 billion fine would be cheap for GOOG. The company brings in $50 billion/year, and those revenues have been growing at roughly 25% per year for quite some time. So if there is a settlement and fine on the table, I expect this won't be much of a story.
The risk lies in what might happen if the settlement talks break down and Google decides to fight. If that happened I'd be sorely tempted to dump my shares in the company. It is always dangerous to fight with anyone who is mission-oriented, who doesn't care about the money so much as the cause. Microsoft's (MSFT) competitive problems over the last generation can be linked, directly, to the government's antitrust case against the company. AT&T (T) wound up a winner, but that was because they were broken up. IBM (IBM) fought the law for a half-century, and I would argue this greatly hampered its efforts in new markets.
Google faces many challenges in highly-competitive markets, like mobile. It doesn't need a host of lawyers and flacks around telling engineers "no" whenever they get a good idea. Google shares will be under a cloud for some months on this news, but if a settlement can be reached, buy it with both hands.
If not, sell out