DOJ Antitrust Lawsuits Targeting Our Top Two Ideas: V and GOOG

Image: Alphabet’s and Visa’s shares have performed remarkably well since the beginning of 2023.

By Brian Nelson, CFA

We received a number of questions regarding the DOJ’s investigation into anticompetitive practices for two of the top ideas in the Best Ideas Newsletter portfolio. Antitrust news with respect to Alphabet’s (GOOG) ad search business and Visa’s (V) debit card business is nothing surprising, but it speaks to the positives and dominance behind their business models, something we like quite a bit. Any outcome of an antitrust lawsuit is uncertain and could result in a settlement and potential other action, including divestitures.

That said, as it relates to Alphabet, the potential for divestitures in its business reinforces a sum-of-the-parts value analysis of its operations, which counterintuitively may spell upside for shares. The bigger risk for Google at the moment is the impact of artificial intelligence [AI] on its search business and an aggressive AI capital spending cycle, but thus far, the competitive impact AI has had on search has been minimal and Alphabet is a big player in AI, too: /alphabets-free-cash-flow-faces-pressure-second-quarter

As it relates to Visa, we continue to be huge fans of its network-effect business model, and the company’s operating and free cash flow margins remain extremely healthy. The DOJ debit review into anti-competitiveness will likely play out over a long time horizon, as for example, antitrust litigation started in 2005 against Visa and Mastercard regarding allegations that merchants had overpaid interchange fees proved to be a decades-long battle in the courts. Though the DOJ debit review will add an overhang to the stock, Visa has handled antitrust scrutiny well in the past, including the blocked deal for Plaid. Here is our latest note on Visa: /visa-continues-expect-low-teens-earnings-per-share

We continue to like the long-term stories of Alphabet and Visa, and we won’t be making any changes to the Best Ideas Newsletter portfolio as a result of the antitrust news at this time.

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