Is the market pricing in a Google spin-off?

Google parent Alphabet's 12-month forward price-to-earnings ratio is now nearly 17.5 times, compared with about 20.8 times for the S&P 500 as a whole. The stock's more than 3 percentage point discount to the benchmark index is the largest since records began in 2005.

The second antitrust case opens, and the risk of Google's split is increasing

In 2020, the U.S. Department of Justice and the attorneys general of 52 states and jurisdictions jointly sued Google, accusing Google of paying billions of dollars in huge "marketing fees" to Apple, Samsung and other companies to ensure that its search engine becomes the default search engine for most smartphones and computers.

After more than four years of trial, on August 5 this year, the U.S. District Court for the District of Columbia ruled that Google illegally monopolized the online search market and violated U.S. antitrust laws.

Following the loss of the first case, the U.S. Northern Virginia Federal Court opened the second Google antitrust case on Monday, and the antitrust lawsuit threat shifted to Google's digital advertising field.

If the ruling of the first case is finally established, Google is very likely to be forced to split its Android operating system and Chrome browser platform; in the second case, the U.S. federal government seeks to force Google to sell its advertising technology services.

The advertising technology department targeted by the second antitrust case is part of Google's huge advertising business, accounting for about one-tenth of its total revenue. Justin Patterson of KeyBanc Capital estimates that a complete spinoff of ad tech could reduce Alphabet's expected earnings per share by 1% to 2% in 2025, which would be a "tough trial" for Google.

The prospects for the spin-off remain unclear, and Wall Street generally remains optimistic

Although the threat of a federal crackdown on Google and its peers, including tech giants, has existed for years, it has not had much impact on their business momentum or investment appeal.

Currently, Wall Street remains relatively positive about Google, with 78% of analysts rating Alphabet's stock as a buy. Most analysts believe that Google's spin-off is unlikely and may be replaced by other punitive measures, such as prohibiting Google from paying high fees to companies such as Apple to guarantee its default search engine status.