After the trade war squabble in May, the first trading day of June has seen Google’s share price or rather Alphabet Inc.’s share price dropped by 6.1%.
News reports have emerged from Wall Street Journal that a host of tech companies will be subjected to antitrust probes by the Federal Trade Commission.
The antitrust probe is an action by the government to pull in on the actions of tech companies regarding their use of data. The probe affected Alphabet Inc.’s share price as it is the parent company of Google, the widely used search engine.
On the first day of trading, a 6.1% drop in Google’s share price reduced their market cap by $47 billion to $721 billion.
From 2019’s high of $1289.27, Google’s share price has crashed by 19.4% after Monday’s trading.
This has reduced Alphabet Inc.’s PE ratio to 26.
Over-reaction or expected reaction?
Investing is very simple, all you have to do is to buy companies at a reasonable price when the stock market presents you with the opportunities.
Although there is no news about any fines by the Federal Trade Commission, let’s assume that Alphabet Inc. will be slapped with a $5 billion fine as well.
A $5 billion fine for a company with a smaller market capitalisation sounds about fair. Of course, we have very little confirmed details and here we are only working on assumptions.
At the latest 10-Q filing to the SEC, Alphabet Inc. recorded a figure of $19.1 billion in cash by end March 2019.
An assumed $5 billion fine sounds like a lot of money, but after the fine, the company will still have a strong business fundamentals and a very strong balance sheet.
With no news about any fines or what-nots, Alphabet Inc.’s market cap decreased by $47 billion. Is it a technical drop like Facebook? Let’s look at the chart as well.
Alphabet Inc.’s 1 Year Stock Chart
Unlike Facebook, where there is a rather obvious support line, Alphabet Inc.’s support line at $1030 doesn’t look strong.
The next day of trading opened at $1042.90 and closed at $1053.05.
Over-reaction or Expected Reaction?
While Facebook had a proposed $3 billion to $5 billion fine, therefore, the market had something to work with. Nothing much has been released about the antitrust probe’s effect on Google, it’s hard to justify this drop in a rational manner.
It does not matter how the market decides the 6.1% drop in Google’s share price.
The fact remains that Alphabet Inc.’s is a strong company and a strong balance sheet remains and that if the market presents a good situation for investment, take it.
An interesting fact is, the probe would affect different tech companies, however, impacts on the different tech companies’ share price such as Amazon, Apple, Facebook, Twitter and so on are different.
At these turbulent and volatile times, it is really important to differentiate noise and news.