A Brief History of Google
Founded in 1998 by Larry Page and Sergey Brin, Google began as a simple search engine with a mission to "organize the world’s information and make it universally accessible and useful." Over the years, Google evolved into Alphabet Inc., a global technology conglomerate encompassing a wide range of services, including search, advertising, cloud computing, software, and hardware. With iconic products like Google Search, YouTube, Android, and Google Cloud, the company has become a cornerstone of the digital age, holding significant sway over the tech landscape.
Google’s Presence in Canadian Portfolios
For many Canadian investors, Google (Alphabet Inc.) is a significant part of their portfolio, primarily through US equity ETFs and mutual funds. These investment vehicles, such as the iShares S&P 500 ETF (XUS) or Vanguard U.S. Total Market Index ETF (VUN), often have Google as one of their top holdings. As one of the world’s largest tech companies, Google’s dominance in search, digital advertising, and cloud computing makes it a staple for investors seeking growth in the technology sector.
The US Government’s Case Against Google
The US Department of Justice (DOJ) is taking a historic stance by filing antitrust lawsuits against Google, accusing it of monopolistic practices. The government alleges that Google’s control over the search engine and digital advertising markets stifles competition and harms consumers. Central to these accusations are Google's exclusionary agreements with companies like Apple, which make Google the default search engine on various devices and browsers.
How a Google Breakup Might Look
If the DOJ’s case succeeds, the court could mandate a breakup of Google into separate, independently operated entities. These could include splitting off key divisions like:
- Search and Ads: The core of Google’s business, potentially creating a standalone search engine company.
- YouTube: A dominant player in video content, which could operate independently.
- Google Cloud: Competing with Amazon Web Services (AWS) and Microsoft Azure, an independent Google Cloud could focus solely on cloud services.
- Android: A separate entity for Google’s mobile operating system.
Impact on Canadian Investors
- Direct Holdings: Canadians holding Google stock directly could see changes in their investment structure. In the event of a breakup, shareholders might receive shares in the newly formed entities, potentially diversifying their portfolios across multiple sectors within the tech industry.
- ETFs and Mutual Funds: Canadian investors holding ETFs or mutual funds would be indirectly affected. The ETF and Mutual fund managers may need to adjust their portfolios to reflect the newly created companies, depending on the fund’s mandate. This could alter the performance and growth trajectory of these funds, depending on how the individual companies perform post-breakup.
- Market Adjustment: If Google were to undergo a breakup, Canadian investors could experience a period of market adjustment as the newly independent business units establish themselves and investors assess their value. This adjustment phase could introduce short-term volatility, as each company—like a standalone Google Search, YouTube, or Google Cloud—would have unique growth trajectories and risk profiles. Investors might see shifts in valuation across these entities as the market evaluates their individual potential.
A Broader Precedent for Big Tech
A breakup of Google would not just impact Alphabet—it could set a precedent for other tech giants like Amazon, Apple, and Meta. Regulatory authorities worldwide may follow suit, increasing scrutiny these conglomerates. The potential breakup of multiple tech giants could reshape the technology sector, fostering competition and innovation.
Long-Term Implications
- Unlocking Value: Investors might benefit from the increased focus and efficiency of the spun-off companies. Each could potentially unlock value that was previously hidden under the Alphabet umbrella.
- Enhanced Competition: More competition could lead to better services and pricing for consumers, which might also translate into new investment opportunities as smaller players gain ground.
- Operational Challenges: Newly independent companies may face operational hurdles, including having limited cash flow to invest in R&D, potentially impacting their performance and growth. Over time, this could stabilize, potentially offering new growth opportunities if the individual companies thrive in their respective niches.
- Global Influence: The breakup could encourage similar regulatory actions in other countries, affecting global tech investment landscapes.
Final Thoughts
For clients with portfolios holding passive, globally diversified, broad-market ETFs, the potential breakup of Google or other large tech companies is not a cause for immediate concern. Such portfolios are designed to provide broad exposure across sectors and regions, reducing the impact of any single company’s performance. While the restructuring of a tech giant like Google could create short-term volatility, the long-term diversification inherent in these portfolios mitigates concentrated risks.
Should you be worried? No. Google’s breakup would result in the creation of multiple companies, and these would still be part of the broader market indices that your ETFs track. Over time, market forces will rebalance, and new opportunities will emerge, ensuring your investments remain aligned with overall market performance.
For prospective clients curious or concerned about how these shifts might impact their wealth, Daley Wealth Management offers tailored advice to navigate such complexities. We specialize in building and managing globally diversified portfolios that are resilient to regulatory shifts and market volatility.
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson Wealth or its affiliates. Assumptions, opinions and estimates constitute the author's judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them, having regard to their own particular circumstances. Richardson Wealth is a member of Canadian Investor Protection Fund. Richardson Wealth is a trademark by its respective owners used under license by Richardson Wealth.