Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
On April 17, US District Court Judge Leonie Brinkema issued her opinion on the Google ad tech antitrust case, finding the company to have an illegal monopoly in the sell-side ad market while rejecting the plaintiffs’ claim that the firm monopolized the advertiser network market.
Why it matters: Alphabet GOOG has built an integrated ad stack, with its presence on the supply, demand, and exchange parts of the advertising market. We believe that following Brinkema’s opinion, the US Department of Justice will submit a proposal for the divesture of Alphabet’s Google Network.
Antitrust clouds have surrounded Alphabet’s businesses, with the firm facing separate antitrust cases on Search, Play, and ad tech. While not as important as the firm’s Search and YouTube ad businesses, open-web display ads provide key integration and data benefits to Alphabet.Like with the Google Search antitrust case, Alphabet is planning to appeal the decision, with the appeals process likely delaying any remedies into 2026.
The bottom line: We retain our $237 fair value estimate for wide-moat Alphabet, and judging by the muted reaction to the antitrust decision April 17, we believe the market had largely priced in an adverse decision on the ad tech front. We continue to view Alphabet’s shares as materially undervalued.
We estimate that the Google Network business can be loosely valued at $90 billion, around 5% of the firm’s current market cap and not material to Alphabet’s value as a whole.We also note that Alphabet’s strategic deprioritization of this business is reflected in the Google Network segment’s sales declining for three years in a row, as well as Alphabet’s prior offer to regulators to spin off this business.
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