Google is facing two major problems at the moment.
1. Lack of commercialisation of their AI software. Google spent $29 billion dollars on AI in Fiscal 2024 and is looking to spend $75 billion dollars in Fiscal 2025. They don’t really anything to show for this and instead have a lawsuit against them(Chegg v Google). Chegg recently filed a lawsuit against Google alleging that their “AI Overview” is affecting traffic to other websites.
This is a valid claim and this could possibly affect the Google Network segment of their revenue. For those of you unfamiliar, Google Network is a collection of websites that partner with Google to have ads displayed on their website. The ads are also displayed on devices that are a part of this network.
The categories of websites that I think AI overview could affect are Informational, Recipe, Reviews and others in these broad categories. There could be more that I might not have thought of.
For reference, their revenue from ads on Search was $198 billion for Fiscal 2024 and revenue from Google Network was $30 billion for Fiscal 2024.
Going through Googles 10-K for fiscal 2024, it’s funny the amount of times you read the word “AI” and them trying to justify their costs by constantly emphasising how AI is used in their products and services. Whereas the truth is that this use of AI is just plain old software that has been around for a while and is just being rebranded as AI.
I don’t think not being able to commercialise AI is bad for the company long term. It would be better if they’d stop investing so much money into it though. In the short term, this is definitely bearish for the stock.
2. I still have to do more research but here is the gist.
The antitrust lawsuits against them. They are expecting a decision on United States vs Google(2023) early 2025(probably in the next 1-2 months) and are expecting the remedies on United States v Google(2020) in the second half of 2025.
The 2023 lawsuit is in regards to the monopoly that Google has over the ad market. In particular, their product DoubleClick. This product allows its customers to make ads for websites and have them be displayed according to user behaviour. DoubleClick has a monopoly on user data and this is something that new companies have trouble with and thus can’t compete.
The 2020 lawsuit is in regards to their monopoly in search. Google paying companies like Apple yearly to remain the default search engine is considered breaking antitrust law. The court ruled unfavourably and now Google is waiting for remedies.
These lawsuits could bring more competition into the market for Google and Google could have to reduce their prices or lose market share to other companies.
For the ad lawsuit(2023), Google could be instructed to make things like their huge collection of data public. This would help smaller companies bring more competition into the market and Google could have to reduce their prices and thus affecting revenue and growth potential.
For the search lawsuit(2020), Google could be instructed to not pay companies to remain the default search engine and companies like Apple will probably provide their users with options to pick their default browser. This could potentially cause Google to lose market share to other search engines such a Bing and DuckDuckGo.
The only silver lining here is the popularity of Google, its ecosystem(mail, maps etc) and familiarity with the product.
It is possible that people won’t go to other search engines and stick with Google. Although I can see some popular person affecting a large group of people to use another search engine. Or younger kids in school start to use a different search engine and that carries on through adulthood(this is very long term though). Or even more wild would be search engines becoming trends(just seems wild to me).
I do find this unlikely just because of the sheer amount of people that use google. But I also understand that if Apple started showing results from bing, most people would just go with it.
Same with ads. Google could possible retain customers if it can retain its search engine popularity and offer competitive prices(assuming there is strong competition).
But these are things that can definitely affect the stocks long term success in the ad business.
Now let’s talk about their “other bets”. This includes the medical services and products they provide and companies like Waymo and a few other things they’re betting on for growth.
I do have to more research on these two things, especially Waymo. But if any one of you have some knowledge regarding these projects, please do share. And also discuss any ideas regarding the points I made above.