Alphabet (GOOG 0.03%) (GOOGL 0.32%) stock slumped 2.1% through 12:30 p.m. ET Thursday -- and it's not hard to figure out why.
This morning, the European Commission (E.C.) cited the European Union's Digital Markets Act (DMA) in announcing formal proceedings "to assess whether Google applies fair, reasonable, and nondiscriminatory conditions of access to publishers' websites on Google Search." It's this fear of litigation that has investors spooked about Google parent company Alphabet today.
Image source: Getty Images.
Is the E.C. mad at Alphabet?
The E.C. says Google's "site reputation abuse policy" punishes news media and other websites when those websites include content from commercial partners. Google argues this policy discourages publishers from manipulating their rankings in search results, but the EC thinks sponsored content may be a legitimate business practice that Google is impinging.
Mind you, the EC only thinks this, and may take the next 12 months to make up its mind. If it decides against Google, though, the EC has the power to fine Alphabet "up to 10% of the company's total worldwide turnover," and potentially "up to 20% in case of repeated infringement."
Alphabet did $385.5 billion in turnover (i.e., revenue) last year. That works out to potential fines as high as $77.1 billion!
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Is Alphabet stock a sell?
That's almost certainly not going to happen. Worst-case scenario, even if the E.C. finds against Google/Alphabet, the company could simply change its policy to align with the E.C.'s view of what it's allowed to do, and stop doing what it's not allowed to do.
Still, the E.C. investigation highlights the risk of Alphabet having to do business in Europe, where it's considered something of a monopolist, and subjected to heightened scrutiny of all its actions. That's a risk investors need to bear in mind constantly.
