Some of Australia's industry-leading ASX stocks are facing the threat of a digital disruption from US tech giant Alphabet Inc (the parent company of Google).
I am not talking about media companies which have already suffered a painful de-rating. I am referring to travel-related ASX stocks such as the Flight Centre Travel Group Ltd (ASX: FLT) share price, Webjet Limited (ASX: WEB) share price and even the Qantas Airways Limited (ASX: QAN) share price.
These stocks have underperformed the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index over the past 12 months but could be facing more pressure over the medium- to longer-term as Google is positioning to eat their lunch.
Google wants to own travel
There are signs that the world's largest search engine is trying to dominate the travel space, according to a report in the Australian Financial Review. Anything Google wants, it usually gets thanks to its over-sized check book.
Travellers use the search engine to research holiday destinations and there are accusations that Google is directing traffic away from popular websites to sites that it owns. The Silicon Valley-based giant has revamped its Google Travel business back in May to make it easier for users to research and purchase plane tickets, hotel accommodations and other travel related services.
Google observers point out that it paid US$700 million in 2010 for ITA Software (search engine for airfares) and it plans to enter any industry where it believes intermediaries do not add value.
With the growing popularity of online travel bookings, Google poses an existential threat to the likes of Flight Centre and Webjet (and many other travel industry leaders for that matter), who are essentially funding their own demise as many of these companies advertise with Google.
Airlines could also face Google turbulence
It's believed that, if left unchecked, Google will have so much market power that it can start dictating terms to the airlines, and that's how Qantas and Virgin Australia Holdings Ltd (ASX: VAH) can get into trouble.
However, there may not be an inevitability to Google colonising the travel sector. There are calls for Google to be broken up to ensure it doesn't snuff out competition, and anti-trust regulators around the world (including our ACCC) are likely to be watching very closely. Competition regulators are more alive to the rise of tech giants these days than in the past as they've seen the impact that Google and Facebook, Inc. have had on their competitors.
Forecasting regulatory action is difficult and that makes it challenging for investors looking to invest in the sector. But drastic change won't come quickly (Rome was built in a day and it wasn't destroyed in a day either). Nonetheless, I believe applying some sort of "Google discount" on these stocks is probably warranted.
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