Google feels the heat from lawmakers and wants to transfer some ad-related businesses to Alphabet

Google has considered separating parts of the companies it owns, which rely on ad sales, into separate units that would be owned by parent company Alphabet. This plan is being developed to keep Google away from lawmakers and regulators who would love nothing more than to point one of their fat fingers at the company and shout ‘Monopolist’ with all their heart.

A few months ago, US senators focused on possible allegations of conflicts of interest in the ad technology industry, hoping to get dominant companies like Google to split into smaller operations. According to eMarketer, advertisers plan to spend more than $600 billion this year to place digital ads online worldwide.

Google could own 29% of the global digital advertising market this year

By 2022, eMarketer expects Google’s digital advertising revenue to reach $174.81 billion worldwide, accounting for an annual profit of 17.3%. This would give Google a 29.0% share of the global digital advertising market. With a 21.4% share, Facebook has the second largest share of the digital advertising pie behind Google. The Meta unit has also been the subject of congressional meetings on antitrust issues.

Google’s ad-related businesses showed strong growth in the first quarter of 2022

Google’s move here is actually a smart one. By working on your own break-up plan, Google could have more say in the split of the company. In an email to Daily Search and Performance Marketingwrote a Google spokesperson: “We have been working constructively with regulators to address their concerns. As we have said before, we have no plans to sell or terminate this company, and we are deeply committed to providing value to a wide range of publisher and advertiser partners in a highly competitive industry.”

Google has come under fire from lawmakers and regulators who complain that the company has a conflict of interest when acting as a broker and auctioneer of online ads. Google acts as an intermediary when it places ads for businesses on third-party sites. It acts as an auctioneer when it bids on ads placed on Google’s search engine. In a lightning-fast process, Google looks at the bids advertisers are willing to pay each time a consumer clicks on an ad. The quality of the advertisements participating in the auction is also considered.

Google revealed strong ad revenue in the first quarter of $54.7 billion (including Search, YouTube and the Google network) compared to $44.7 billion it collected in the same quarter last year. That equates to a 22.4% increase for Google in the first three months of this year.

Google could face lawsuit alleging anticompetitive behavior

The Justice Department is reportedly working on a lawsuit that would accuse Google of using anti-competitive business practices. The charges could be filed as early as this summer. A Google spokesperson pointed out that the “tight competition in ad technology” not only makes this sector of the ad industry more competitive, but also offers publishers and advertisers more advertising opportunities at a lower price.

The Wall Street Journal says the ad-focused parts of Google’s businesses, the units the company could transfer to its parent company, could be valued at tens of billions of dollars. Currently, Alphabet has a market capitalization (share price multiplied by the number of shares outstanding) of $1.53 trillion.

Last month, Alphabet said it would allow rival advertising brokers to post ads on its YouTube app as part of Google’s strategy to settle a European Union antitrust investigation.

In addition to being the number one player in digital advertising, Google is expected to have a 59.4% leading share of the global search advertising market. This could lead to global search advertising revenue for Google of $142.30 billion this year. Google also has a nice-sized display ad business, which eMarketer estimates will gross $32.51 billion this year, giving the company a 9.6% share of display ad spend worldwide.

Shares of Alphabet, found under the ticker symbol GOOG, are currently trading at $2,326.73 per share, resulting in a 20% drop for the year so far. The stock is currently much closer to its 52-week low of $2,044.16 than it is to its 52-week high of $3,042.00. If Google decides to move some of its online digital advertising business to Alphabet, the inventory could soar as some merchants will see it as a way to unlock hidden value within the company.