Alphabet Inc.

Overview Key strengths Key risks Strong position in the online search and video advertising market supported by unique data Increased regulatory scrutiny across regions in antitrust, liability for third-party content, and privacy Strong technological talent drives innovative product development Business concentration because most revenue comes from digital advertising Good operating track record with double-digit annual percent revenue growth and high profit margins High investment resulting in operating losses in Google Cloud Financial flexibility from substantial cash balances of $142 billion and funded debt of $13 billion Unadjusted free operating cash flow of $66 billion for the last 12 months despite large investments in capital expenditure and research and development Significant capacity for acquisitions and shareholder returns within the rating constraints

...Increased regulatory scrutiny is the most important risk for the rating, but in our view, downgrade scenarios are unlikely. The U.S. Department of Justice and several state attorneys general have filed antitrust lawsuits and complaints against Google relating to search digital advertising, Android, and the Google Play store. We expect these matters to take several years to resolve--the case that is furthest along isn't set to go to trial until September 2023--and they could result in fines or changes to business practices, but we think a breakup is unlikely under current law. U.S. lawmakers proposed tougher antitrust legislation in June, but the most aggressive pieces may not garner enough support to pass. In addition, the company has accrued $10 billion in fines from the EU for infringement of European competition law, and new cases may be coming under the EU's General Data Protection Regulation (GDPR). Also, the California Consumer Privacy Act and the Virginia Consumer Data Protection...

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