On the eve of Google’s first trial versus the DOJ, in which the government is arguing that the company’s search business is an anti-competitive monopoly, we are more struck by the allegations in a second suit. This second suit brought by the DOJ, which alleges that Google’s dominant ad tech business is an anti-competitive monopoly, should go to trial around January 2024. As we’ll explain below, this is the trial to watch. We believe it has not only a higher probability of success, but also the potential for a greater financial impact on Google, as Google’s ad tech stack powers the rest of its advertising ecosystem.  

Amazingly, most investors seem to be uninterested in analyzing the risk/reward to Google’s business should the DOJ prevail in either of these suits. We’ve seen plenty of investment theses recently presented by sophisticated managers highlighting Google’s moat as a de facto monopoly without any consideration of what might happen should that no longer to be the case. And while some investors are choosing to look this drastic potential change right in the eye, we believe they’re applying elements of historical legal precedents incorrectly, leading to an intriguing endgame that Mr. Market isn’t properly discounting.  

So, if you read this intro and immediately think “The DOJ successful in breaking up Google? That’s never going to happen!” or you’re a shareholder in Google unsure of the trial outcomes, then this letter is for you (especially if you’re a name-brand investor in Google with a history of successfully hedging tail events in your portfolio).