Breaking Up Google? What last Month's Historic Antitrust Ruling Means for Investors

On August 5th, the most important antitrust trial of the last 20 years came to an end. Google (a company whose name is practically synonymous with finding information online) was found to have an illegal monopoly on its web search technology. But while this ruling itself is a huge turn of events, it also sets the stage for what could be one of the most significant corporate shake-ups in decades – a potential breakup of the tech giant.

The idea of dismantling a behemoth like Google might seem alarming at first, but savvy investors may find a silver lining in this scenario. History has shown that when giants like AT&T were forced to split up in the 1980s, it paved the way for substantial gains, turning a seemingly negative event into a golden opportunity for shareholders. Could Alphabet/Google’s potential breakup follow the same profitable path?

When AT&T was broken up in 1984, it resulted in the creation of several "Baby Bells" that went on to flourish independently. Despite initial concerns, shareholders ended up benefiting greatly from the spinoff, as the new companies were able to innovate, grow, and adapt more quickly than they might have under the larger, more cumbersome AT&T umbrella. A similar outcome could be in store for Alphabet’s shareholders if Google is split into separate entities.

Alphabet, Google's parent company, already operates under a somewhat decentralized structure, with various businesses like YouTube, Google Cloud, and Waymo operating semi-independently. A breakup could allow these businesses to fully develop their potential as standalone companies, each with the ability to focus on its core competencies without being overshadowed by the dominant search engine business. For instance, YouTube could evolve into a more agile media company, while Google Cloud could better compete with industry leaders like Amazon Web Services and Microsoft Azure.

Furthermore, a breakup could unlock hidden value for shareholders. Currently, Alphabet's stock price reflects the combined performance of its various businesses. If these businesses were to operate as separate publicly traded entities, investors could better assess their individual value, potentially leading to higher overall market valuations. This was the case with the Baby Bells, some of which grew into telecommunications powerhouses in their own right, generating substantial returns for investors.

The breakup of Google could also lead to increased competition and innovation across the tech sector. By removing Google’s overwhelming dominance in certain markets, smaller companies may have more room to grow, ultimately benefiting consumers and the broader economy.

At first glance, the breakup of Google might seem like a negative development. And certainly, big changes do always come with risks. But, like AT&T in the 1980s, this antitrust ruling has the potential to bring about renewed competition in a critical area of the US economy (and may end up being a boon for Alphabet shareholders to boot). So while a breakup is still far from certain, the potential for value creation and opportunities for growth in this space make this a scenario we will continue to closely watch.

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