'This is a pro-Amazon ruling': Here's what Wall Street is saying about Google's record-breaking $5 billion fine

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  • Google has been fined a record $5 billion by the European competition watchdog for abusing the dominance of its mobile operating system, Android.
  • The search giant was accused of forcing smartphone makers like Samsung and Huawei to preinstall its services, such as Google Search and Google Maps, on Android.
  • Most Wall Street analysts aren’t concerned about the company’s ability to pay the fine, but say Amazon will benefit the most from the decision.
  • Follow Alphabet’s stock price in real-time here.

The European competition regulator handed down a record-breaking fine of 4.3 billion euros (roughly $5.06 billion) to Alphabet‘s Google on Wednesday, accusing the search giant of abusing its dominant Android mobile-operating system to cement the popularity of Google apps and services.

It’s the biggest antitrust fine ever given by European Union regulators against a single firm, cementing the reputation of the EU’s competition commissioner, Margrethe Vestager, as Silicon Valley’s policewoman, Business Insider’s Shona Ghosh reported.

While most Wall Street analysts aren’t concerned about Google’s ability to pay the fine — the penalty is equal to about 40% of Google’s $12.62 billion profit in 2017 — the scrapped deals with device makers could be a win for competitors, especially Amazon.

“This is a pro-Amazon ruling,” Baird analyst Colin Sebastian wrote in a note to clients out Wednesday.

“Overall, this ruling should have a limited direct impact on Google since it ostensibly does not force a change to the Google search algorithm, and it also seems relatively straight-forward for Google to comply.”

It’s a win for Amazon because of the extra step that will now be required for Android users to use a search engine that isn’t Google, Sebastian said.

It will also force Google to support “forked” versions of the open-source Android software that powers products like Amazon’s Fire devices.

Baird has an outperform rating for Alphabet, with a $1,300 price target on the stock — 7% above where shares were trading Wednesday.

Goldman Sachs isn’t worried about the ruling

“We do not believe the fine (if ultimately paid) would have a material effect on Alphabet’s business or its liquidity,” analyst Heath Terry said in a note.

“The mandated changes to behavior may have a greater impact, but we cannot quantify that impact without knowing how Google will alter its operations, or whether it will be forced to comply pending appeals.”

Goldman remains “buy” rated on the stock, with a slightly lower price target of $1,250 per share.

UBS says the decision won’t hurt Google’s ecosystem of apps

“While the ruling contains a # of restrictions on pre-installed apps, we think it is unlikely to slow/deter the download/usage of Google’s mobile app ecosystem (e.g., in the Apple App Store, Google has 9 of the top 50 apps despite no relationship with the underlying OS),” analyst Eric Sheridan said in a note.

“In general, we think investors will react neutral to positive to this outcome.”

UBS is also “buy” rated, with a price target of $1,360 — one of the highest on Wall Street.

Credit Suisse had the least to say

“From a practical perspective, the consumers in Europe had already made their choice to use Google search as well as Chrome even before the switch from desktop to mobile had begun, as the company has been relentlessly focused on making its services better and raising the value proposition,” analyst Stephen Ju said in a one paragraph note to clients. His price target is $1,213 for the stock.

“Google’s various services have long ceased to be or never were default installs on iOS (YouTube and Maps at launch of the first series of iPhones), yet nevertheless Google was able to grow its installed base on mobile through the quality of its products.

Hence, from a de-bundling impact perspective on the business, we expect minimal impact,” he said.

Shares of Alphabet initially fell into the red following the ruling, but were up about 0.29% at 2:49 p.m. ET. Wall Street analyst polled by Bloomberg have an average price target of $1,261 for the stock, about 3.6% above Wednesday’s prices.

Alphabet has gained 13% this year.

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