NEW YORK (TheStreet) -- Google(GOOGL) - Get Report shares are down 0.97% to $534.54 in early market trading on Wednesday after the European Union's Competition Commissioner, Margrethe Vestager, formally charged the global technology company with violating the EU's antitrust laws by "abusing its dominance in web searches to the detriment of competitors", according to the New York Times.
If the charges, the result of a five year investigation into the company, are confirmed then Google will have to change its business model in the European bloc as well as face hefty fines that could top $6 billion, according to the Wall Street Journal.
The EU commission is also opening separate antitrust investigation into the company's mobile operating system, Android, and whether Google entered into anti-competitive agreements or otherwise abused its dominant position in the market.
"In the case of Google I am concerned that the company has given an unfair advantage to its own comparison shopping service, in breach of EU antitrust rules. Google now has the opportunity to convince the Commission to the contrary," said Vestager. "However, if the investigation confirmed our concerns, Google would have to face the legal consequences and change the way it does business in Europe."
"I have also launched a formal antitrust investigation of Google's conduct concerning mobile operating systems, apps and services. Smartphones, tablets and similar devices play an increasing role in many people's daily lives and I want to make sure the markets in this area can flourish without anticompetitive constraints imposed by any company," she said.
The suit would become the biggest competition battle in the EU since its antitrust crusade against Microsoft(MSFT) - Get Report a decade ago. The Microsoft anti-trust probe resulted in that company being fined $2.36 billion.
Google responded to the investigation by stating that it "respectfully but strongly disagree" with the EU and that it "look forward to making our case over the weeks ahead," according to a statement.
Jack Mohr, Research Director Action Alerts PLUS, believes that Google has strong deniability in this case, writing in today's blog:
We believe Google has a very strong defense against the EU's allegations. For starters, people have more search choices than ever before. There are a bevy of search engines including Bing, Yahoo, Wuora, DuckDuckGO and a new wave of search assistants like Apple's Siri and Microsoft's Cortana. Plus, there are a ton of specialized services like Amazon, Idealo, Le Guide, Expedia or eBay that facilitate the shopping experience. Second, many of the complaintants have alleged that Goole's practice of including specialized results (Flight Search, Maps, Local results, etc.) in search has significantly harmed their business. However, their traffic, revenues and profits tell a very different story (over the last four years, Yelp has seen 350% revenue growth, TripAdvisor has doubled its revenues, Expedia has grown revenues 67%, the list goes on). It is clear that Google's playing field is filled with innovation, new entrants, investments and competition. There is clearly not one dominant player, and we believe Google will at the very least be able to reach a reasonable settlement.
Separately, TheStreet Ratings team rates GOOGLE INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:
"We rate GOOGLE INC (GOOGL) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its increase in net income, robust revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and expanding profit margins. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Internet Software & Services industry average. The net income increased by 40.9% when compared to the same quarter one year prior, rising from $3,376.00 million to $4,757.00 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 18.9%. Since the same quarter one year prior, revenues rose by 15.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- GOOGL's debt-to-equity ratio is very low at 0.05 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 4.52, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for GOOGLE INC is rather high; currently it is at 68.77%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 26.27% is above that of the industry average.
- You can view the full analysis from the report here: GOOGL Ratings Report