Are Google's High Legal Costs A Drag on Its Stock Vs. Peers?

Core Viewpoint - Google is facing significant legal challenges that are impacting its operating expenses and overall financial performance, despite showing strong earnings in comparison to competitors like Meta Platforms [2][12]. Financial Performance - In the second quarter, Google's total operating expenses rose by 20% to $26.1 billion, primarily due to legal costs, including a $1.4 billion charge related to a settlement [2]. - Operating margin remained flat year-on-year at 40.1%, partially affected by legal charges [2]. - Google's operating expenses for 2022 were approximately $208 billion, increasing to $223 billion in 2023 and projected to rise to $237.6 billion in 2024, indicating that legal payouts constitute about 1% or less of its yearly operating costs [14]. Legal Challenges - Google is currently embroiled in numerous lawsuits globally, including a significant antitrust ruling in April 2025 where it was found to hold an illegal monopoly in online advertising markets [4]. - The company has faced a total of approximately $3 billion in fines from the European Commission since 2017, with ongoing legal proceedings that could lead to further financial liabilities [3][18]. - In Russia, Google is involved in disputes with 17 TV networks over YouTube channel removals, facing fines totaling around 46 billion rubles (approximately $580 million) [8][9]. Market Position - Despite the legal challenges, Google has underperformed compared to Meta, with a year-to-date increase of under 2% versus Meta's 22% [16]. - Google trades at a forward price-to-earnings ratio of 20.6, which is lower than Meta's 27.9, suggesting that Google shares may be undervalued relative to its legal risks [16].