Analysts Adjust Google Parent Alphabet Price Target After Litigation Settlement

While the dictionary definition of "incognito" is "to hide one's true identity," for Google's parent company, Alphabet (GOOG) It is more like a problem that has been a headache for four years.

In 2020, Google was hit with a lawsuit alleging that the search, advertising and cloud services giant was tracking user data in an incognito browsing mode.

The lawsuit alleges that this practice reveals "the most private and potentially embarrassing content" that people search for online, turning Google into an "irresponsible repository of information."

In order to settle the lawsuit, the company agreed to erase billions of records containing the personal information of more than 136 million Americans who accessed the Internet through Chrome.

While the plaintiffs are seeking $5 billion in damages, Google will not pay any, but users can sue the company individually.

"We are pleased to settle this lawsuit, which we have long considered to be without merit," Google spokesman Jose Castaneda said in a statement.

"We never associate data with users where they are in incognito mode. We are happy to delete old technical data that has never been associated with an individual and has never been used for any kind of personalization," he added.

Alphabet's chief executive Sundar Pichai has one less headache to deal with after settling a privacy-related lawsuit against a collection of companies.

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Analysts Cite Sleepy Laws

Wells Fargo has decided to cut its price target on Alphabet's shares from $144 to $141 while maintaining an equal-weight (effectively neutral) rating.

According to Investing.com, analysts at the investment firm note that while the settlement does not involve any direct financial compensation, Alphabet has incurred significant costs from other legal challenges, including a settlement of about $350 million reached in February of this year.

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Among other issues, Google has to deal with lawsuits filed by the U.S. Department of Justice and several states over its advertising business.

The U.S. government has accused Google of violating antitrust laws by monopolizing the digital advertising business. The trial began in September. A similar lawsuit filed by the state of Texas is scheduled for 2025.

The European Commission has recently imposed sanctions under the Digital Markets Act on Google, Apple (AAPL) and Facebook parent company Meta (META) A new series of surveys has been launched.

The committee is investigating Alphabet's possible non-compliance with the guidelines, as well as the company's measures to prevent self-referrals.

Last month, the French competition authority slapped Google with a $270 million fine for failing to comply with its previous request for a more transparent relationship with media companies.

Wells Fargo also cited the year-over-year impact of Alphabet's January 2023 reduction in the expected lifespan of certain devices.

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In January, Google said in its fourth-quarter earnings report that it had completed an evaluation of the lifespan of its servers and network equipment. The company shortened the life expectancy of its servers from six years to four years and the life expectancy of certain network equipment from six years to five years.

This action reduced depreciation expense by $983 million and $3.9 billion for the three and 12 months ended December 31, 2023, respectively, and increased net income by $765 million and $3.0 billion, respectively, the company said.

In addition, Wells Fargo also said that Alphabet's upcoming transition to a conversational search format "creates significant uncertainty in the search market".

The investment firm expects confusion from the format change, "which could create headwinds for search growth in the medium term."

Alphabet's chief executive Pichai sees 'new opportunities' in AI

In May, Google said it had begun experimenting with Search Generative Experience (SGE), which the company hopes will transform search through generative artificial intelligence.

"SGE is creating new opportunities for us to improve people's business journeys by displaying relevant advertisements alongside search results," Chief Executive Officer Sandhar Pichai told analysts.

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"We've also found that people find the ads above or below the AI microsoft overviews helpful, as they provide useful options for people to take action and connect with businesses," he said.

He added that SGE's early feedback has been positive.

Alphabet is scheduled to report first-quarter earnings on April 23rd. In January, the company reported fourth-quarter earnings of $1.64 per share, beating the FactSet consensus estimate of $1.59 per share.

Total revenue was $86.31 billion, compared to FactSet's estimate of $85.3 billion.

However, according to StreetAccount, total advertising revenue was $65.52 billion, lower than the $65.94 billion analysts had estimated.

For the first quarter, analysts expect Alphabet to report earnings of $1.51 per share on sales of $78.7 billion.

Bob Lang of TheStreet Pro says there's no doubt that Alphabet is "catching up with the other megacaps."

"The company," he wrote, "released some hard-to-swallow earnings in January, but promised things would improve." They cited improvements in artificial intelligence and search noodles."

Lan said the company laid off a large number of employees and began to adjust the business model.

As a result, he said, "the bloated GOOGL is getting leaner and leaner and more attractive to big investors".

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