- Google parent Alphabet just announced gangbuster earnings, with soaring revenues that beat Wall Street expectations.
- It was music to investors’ ears, but on an earnings call CEO Sundar Pichai was grilled over the recent Justice Department lawsuit.
- Analysts and investors are concerned about the potential impact of the case, with one specifically asking if Google losing an exclusivity contract with Apple could be a “code red.”
- Pichai also tried to allay concerns that the case could be a distraction for Google, as it was for Microsoft in the ’90s.
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Google parent Alphabet just turned in some impressive Q3 numbers, strongly beating Wall Street expectations and sending its stock up sharply in after-hours trading.
But analysts and investors couldn’t shake the looming shadow of a Justice Department lawsuit filed against Google last week. On the company’s earnings call, CEO Sundar Pichai tried to pre-empt questions on the case, telling analysts and investors that Google will “confidently make our case.”
“Regarding the DoJ’s lawsuit, we believe that our products are creating significant consumer benefits, and we’ll confidently make our case,” he said. “Our company’s focus remains on continuing our work to build a search product that people love and value.”
But analysts followed up with several questions about the lawsuit and Google’s partnership with Apple to remain the de facto search provider on its devices – an $8 billion-plus annual deal that could now be on the chopping block.
“Is this really a ‘code red’ situation, or is this something we should be able to manage through?” asked Barclays analyst Ross Sandler, referencing the internal code name at Google for the possibility of losing the lucrative contract.
“Most of our partners choose us because we are the best search provider,” Pichai responded. “Users find us having the highest search quality and so there is organic demand for it. And we believe in investing in our experience across all our platforms, so we are definitely committed to making sure we can serve our users everywhere, and we are really focused on it.
Pichai was also asked if there was the possibility of Google finding “a common ground” with the DOJ.
“Scrutiny is not new for us, and in some ways it’s not sectorwide and not surprisingly so,” he responded. “We will engage constructively where possible and as we have shown through some of the past cases… we are confident of the benefits we bring to our users, we’ll make our case where there is feedback or rulings, we’ll be flexible and adapt. So we’re building that into it.
At another point, Pichai clearly attempted to allay any concerns that the case could be a distraction for the company.
When Microsoft fought through its own case with the Justice Department in the 1990s, the distraction blunted the company’s ambitions and allowed rivals like Google to get ahead in areas such as mobile.
“While there’s a lot on the legislative and regulatory front, as some of this gets resolved it also creates certainty and in some cases clarity and opportunities as well,” he said. “And so that’s the framework with which we’ll approach it, and we’ll take a long-term view towards it.
“But at the end of the day, what’s in our control is our ability to relentlessly focus on users and build great products and that’s where most of our energy will go into.”
On Apple’s earnings call also held late Thursday, CEO Tim Cook was also asked about the lucrative search deal with Google, which nets Apple between $8 billion and $12 billion a year, according to analysts. The Apple chief downplayed the significance of the deal and the potential for immediate impact.
“I have no idea how the DOJ suit will go, but I think it’s a long way from a conclusion on it.”
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