A Breakup of Amazon and Alphabet Could Unlock Value

With Amzon.com (AMZN) and Alphabet (GOOGL) facing scrutiny from the Department of Justice and the Federal Trade Commission, some analysts believe a breakup of the companies could boost their market value.  President Biden last week called for antitrust legislation targeting technology giants, and a group of bipartisan legislators vowed to reform antitrust laws to curb the power of mega-cap technology companies.

Some analysts believe that breaking up big tech companies could unlock value in companies such as Amazon.com or Alphabet as their massive corporate structures limit their upside potential.  A breakup of the stocks into several separate companies could be worth more together than the combined entities are now.  Accuvest Global Advisors said, “Amazon and Alphabet have been serial underperformers, and the greatest unlocking of value would come from splitting up the businesses,” with Amazon potentially climbing by 50% and Alphabet rising as much as 30%.

Needham & Co said Alphabet is worth more in pieces than together and that breaking up the company could push the stock higher by 10% to 20%, saying YouTube alone could be valued at $300 billion if it were separately traded, nearly double the capitalization of Netflix (NFLX).  Amazon.com has three businesses: e-commerce, Amazon Web Services (AWS), and advertising services.  Bloomberg Intelligence last year calculated that AWS alone could be worth $1.5 trillion to $2 trillion.

Bloomberg News reported last month that the U.S. Federal Trade Commission is preparing a possible antitrust lawsuit against Amazon.com, and the U.S. Justice Department last month joined with eight states in suing Alphabet’s Google, calling for the breakup of its ad-technology business.  However, a breakup of these mega-cap tech stocks could take years to play out in the legal system and could weigh on sentiment toward the stocks.

The antitrust allegations against mega-cap tech companies make it harder for them to make acquisitions and expand their businesses.  The Henderson Global Technology and Innovation Fund said, “it has become hard for these companies to make an acquisition that can alter their growth profile or extend their competitive advantage in core markets, and right now, that’s a bigger antitrust risk than the idea they may be forced to spin off businesses.”

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