Tag: Motley Fool

The Piedmont Lithium Inc (ASX: PLL) share price is gaining today, up by 0.55%. At the time of writing, Piedmont shares are changing hands for 91 cents.

Below, we look at the lithium company’s latest project update.

What did Piedmont report on its scoping study?

Piedmont Lithium’s share price is gaining after the company updated the market on the scoping study for its proposed integrated lithium hydroxide business. The business, Carolina Lithium, is located in the US state of North Carolina.

According to the release, the study confirmed Carolina Lithium will be among the world’s biggest and lowest-cost producers of lithium hydroxide. The company noted the project was well placed to help power the big expected increase in electric vehicles (EVs) in the US.

It also highlighted a superior sustainability level of its project compared to existing producers, who are based in China and South America. In China, lithium producers remain highly dependent on coal-fired power. In South America, lithium producers often use huge tracts of land and large amounts of water which, Piedmont notes, occurs in the Atacama — the driest desert on Earth.

By contrast, Piedmont Lithium’s Metso Outotec process reduces emissions, eliminates sulfuric acid roasting and reduces solid waste, the company says. Its use of solar power also cuts back its dependence on carbon-based energy sources. In addition, transport distances for its raw materials and finished products are far lower than its Chinese and South American competitors.

The lithium company is forecasting a 2.9 year payback period with US$401 million average annual earnings before interest, taxes, depreciation and amortisation (EBITDA). It expects to produce 30,000 tonnes of lithium hydroxide per year.

Piedmont Lithium’s CEO Keith Phillips said:

It is critical that raw material supply chains do not detract from the overall sustainability of the transition to electric vehicles…

Given the project’s unique position as the only American spodumene project, with world-class scale, economics, and sustainability, we expect strategic interest to be robust.

The company has engaged Evercore and JPMorgan as financial advisors.

Piedmont Lithium share price snapshot

Piedmont Lithium’s share price has rocketed over the past 12 months, up 810%. That blows the doors off the 20% gains posted by the All Ordinaries Index (ASX: XAO) over that same time.

The Piedmont Energy share price has continued to hugely outperform in 2021, up 145% so far this calendar year.

The post Why the Piedmont Lithium (ASX:PLL) share price is gaining today appeared first on The Motley Fool Australia.

More reading

• Why the Piedmont Lithium (ASX:PLL) share price is lifting today
• ASX lithium shares are charging up today

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Piedmont Lithium Limited. Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Shares in Superloop Ltd (ASX: SLC) opened lower today before jumping higher in mid-morning trade and then quickly falling again. At the time of writing, the Superloop share price is sitting at $1.05, the same as at yesterday’s close.

Today’s share price movements follow news the company is to finalise shareholder eligibility to participate in the final step of its capital raise.

Yesterday, the telecommunication and infrastructure company announced it had completed its placement and institutional entitlement offer, which raised $79 million. Today’s news relates to Superloop’s upcoming retail entitlement offer.

Let’s take a closer look at the company’s latest announcement.

Retail entitlement offer

The retail entitlement offer is the last portion of Superloop’s $100 million capital raise.

It will be open only to those who hold shares of Superloop as of 7pm AEST today.

Eligible shareholders will be able to buy 1 new share in Superloop for every 6.67 shares they hold. They will also be able to take part in the top-up facility by applying for up to 50% more shares than they are initially eligible for.

Each new share will cost 93 cents – a 10.6% discount on the Superloop share price as of market close on 4 June.

The retail entitlement offer is expected to raise around $21 million. The final offer will close on 29 June.

New acquisition

Superloop is raising capital to acquire Australia’s largest independent internet service provider, Exetel. According to Superloop, the acquisition will boost its customer base by 110,000 and deliver $5 million in cost savings annually.

After the acquisition, Superloop expects its 2021 financial year earnings before interest, tax, depreciation, and amortisation (EBITDA)  to be 89% higher than the 2020 financial year.

Superloop share price snapshot

2021 has been a nail-biting year for the Superloop share price, which is currently 0.94% less than it was at the start of the year.

It has also fallen by 6.67% since this time last year.

The telecommunications company has a market capitalisation of around $384 million, with approximately 370 million shares outstanding.

The post The Superloop (ASX:SLC) share price is a on a rollercoaster ride today appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended SUPERLOOP FPO. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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El Salvador is the world’s first country to adopt Bitcoin (CRYPTO: BTC) as legal tender. The nation’s congress passed a bill allowing Bitcoin to be used as currency late yesterday afternoon.

In typical fashion, El Salvador’s President Nayib Bukele made the announcement on Twitter Inc (NYSE:TWTR). He tweeted 62 out of 84 congress members voted in favour of making the cryptocurrency legal tender.

The news comes only days after President Bukele stated he would introduce the bill, which he believes will increase Salvadorans’ financial freedoms.

#Btc https://t.co/x5r0Td6SiQ

— Nayib Bukele (@nayibbukele) June 9, 2021

https://platform.twitter.com/widgets.js

President Bukele tweeted he’d sent the 3-page bill to congress 4 hours before he tweeted it had passed. It will take effect in 90 days’ time.

El Salvador will allow its population to convert the cryptocurrency to US dollars through a trust created at its development bank BANDESAL.

Additionally, the country intends to give its less crypto-literate citizens “necessary training and mechanisms” to use Bitcoin in everyday transactions.

In another tweet, President Bukele said he wanted state-owned geothermal energy company LaGeo to source electricity from El Salvador’s volcanos to put towards Bitcoin mining. It’s hoped Bitcoin mining in the country will eventually be powered by 100% renewable energy.  

I’ve just instructed the president of @LaGeoSV (our state-owned geothermal electric company), to put up a plan to offer facilities for #Bitcoin mining with very cheap, 100% clean, 100% renewable, 0 emissions energy from our volcanos

This is going to evolve fast! pic.twitter.com/1316DV4YwT

— Nayib Bukele (@nayibbukele) June 9, 2021

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President Bukele has also offered immediate permanent residence in El Salvador for “crypto entrepreneurs”.

Additionally, he highlighted that profits made from trading Bitcoin inside El Salvador won’t be subject to capital gains tax.

Cryptocurrency for equality

According to President Bukele, using Bitcoin as tender would grant Salvadorans more financial equality.

He said 70% of El Salvador’s population did not have bank accounts. Many Salvadorans rely on remittances sent from family living abroad, which often attract hefty transfer fees.

By using cryptocurrency for transfers, the country’s population could effectively sidestep fees to receive billions of dollars more in remittances each year.

Additionally, Bitcoin can be transferred outside of traditional financial institutions. This could make it a more accessible currency for Salvadorans than US dollars.

However, the US dollar will remain El Salvador’s official currency.

About the price of Bitcoin

Since President Bukele tweeted El Salvador has officially adopted Bitcoin as legal tender, the Bitcoin price has gained 13.9%.

Currently, Bitcoin is currently swapping hands for $48,087.58 per coin.

The post In a world first, El Salvador makes Bitcoin legal tender appeared first on The Motley Fool Australia.

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• ASX 200 Weekly Wrap: ASX hits 7,300 points for the first time

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Bitcoin and Twitter. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Andromeda Metals Ltd (ASX: ADN) share price is surging today after the company secured a major off-take deal.

At the time of writing, the Andromeda Metals share price is up 20.93% to 26 cents.

What did Andromeda Metals announce?

The market is excited about Andromeda Metals’ substantial binding offtake agreement with a large Chinese commodity trading house, Jiangsu Mineral Sources International Trading Co Ltd (MSI).

The signed offtake agreement will see Andromeda Metals supply MSI approximately 70,000tpa of its refined, ultra-bright, high-purity, kaolin material used for coatings and polymers for an initial term of 5 years. This product will be given the brand name “Great White PRM”. The announcement highlighted the supply of Great White PRM will require some adjustments for Andromeda’s mining schedule, processing plant design and transport requirements.

The company believes the offtake agreement with MSI “underpins the early years of the Great White Project as it represents a substantial proportion of the planned 116,000 tpa of refined halloysite-kaolin product.”

From a pricing perspective, the contract also offers a significantly higher price than what was used in the company’s pre-feasibility study, of A$700/tonne for ceramic grade material. However, the actual fixed contract price is omitted from this announcement, “at the request of the customer due to it being considered to be commercially sensitive information”.

MSI will receive exclusivity in China for Andromeda Metals’ PRM product for the duration of the contract, to allow it to market the product to end users.

Alongside the signed offtake agreement, the announcement advised that discussions are continuing with MSI for the supply of another product, its premium ceramic grade Great White CRM product under a separate agreement.

The Andromeda Metals share price in 2021

The Andromeda share price has struggled to push higher this year, facing a sharp 60% sell-off from 46 cents to 16 cents between 17 March and 5 May.

Despite the harsh sell-off, the exploration company has continued to push forward, recently announcing the commencement of aircore drilling at the Great White project and a $4 million research partnership to explore carbon dioxide capture through the use of halloysite nanotubes.

The post Why the Andromeda Metals (ASX:ADN) share price is surging 20% today appeared first on The Motley Fool Australia.

More reading

• The Andromeda (ASX:ADN) share price is soaring 7% today. Here’s why

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Investors always like to get in on hot new trends, and the cryptocurrency revolution certainly qualifies. Interest in digital currencies intensified toward the end of 2020 and into 2021. And even after a massive crash that lopped half or more off the prices of some tokens, the area is still getting a huge amount of attention from investors trying to gauge the long-term prospects for cryptocurrencies and other related applications made possible by blockchain technology.

The Nasdaq exchange recently became the home of the hottest publicly traded crypto stock. Coinbase Global (NASDAQ: COIN) has become a leading provider of cryptocurrency brokerage services, and its stock was up by almost 2% in late afternoon trading Wednesday as prices of leading cryptocurrencies rebounded from recent declines. But at least one Wall Street analyst is less than optimistic about Coinbase’s long-term prospects.

Not quite glittering like gold

Coinbase’s gain came as prices for several major cryptocurrencies made solid advances. Most top tokens were up by anywhere from 5% to 13% on the day, even though many had fallen to their worst levels in months just recently.

It’s reasonable for Coinbase’s stock price to track the ups and downs of crypto tokens. When investors are excited about cryptocurrencies, that leads to an increase in trading, which gives the company more revenue. If investors decide that the space no longer has any long-term promise, then Coinbase’s trading volumes would likely suffer, hurting its revenues.

In the short run, Coinbase has emerged as a premier provider of crypto brokerage services. Many institutional investors have joined the individual investors who gravitated to its platform, and the growing popularity of its Coinbase Pro offering could well help the company build even greater customer loyalty.

Say goodbye to fees?

On the other hand, one Wall Street analyst believes that Coinbase faces a much steeper uphill battle. Raymond James started covering it Tuesday and gave it an underperform rating.

It’s undeniable that Coinbase has a significant head start in gathering people interested in cryptocurrency trading. In a business in which reputation is key, it has managed to overcome the innate distrust that many investors have about crypto, allowing it to add large numbers of new accounts over the past year.

As Raymond James sees it, though, the problem is that there’s nothing stopping other companies from entering the space and challenging Coinbase’s leadership role. Because the platform derives a large portion of its overall revenues from trading commissions, the emergence of new competitors could challenge its ability to keep charging as much as it does.

Investors don’t have to look too far to find parallels. Stockbrokers used to take in impressive amounts of fee revenue. Even during the discount brokerage era, major players still brought in billions of dollars from customers paying to trade stocks. Yet as time went on, intensifying competition forced commissions ever lower, a trend that culminated in the recent elimination of stock trading fees by nearly every major brokerage.

If the same thing happens in the realm of cryptocurrency trading, then Coinbase’s stock could continue along the downward slope it has been on since its first day of trading. If the company can keep adding useful new services and features that allow it to differentiate itself from would-be disruptors, however, then its stock price might yet return to the levels it was trading at a couple of months ago.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post This Nasdaq crypto play has Wall Street shaking its head appeared first on The Motley Fool Australia.

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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An ASX-listed company and its former chief executive have been taken to the Federal Court to face allegations of holding back information about a major earnings downgrade.

The Australian Securities and Investments Commission (ASIC) has started a civil case against shipbuilder Austal Limited (ASX: ASB) after investigating its behaviour in 2016.

In December 2015, the company provided the market with guidance that its US business would be profitable for that financial year.

At the time, Austal projected an earnings before interest and tax (EBIT) margin to be between 4.5% to 6.5% for the 2016 financial year. This is a measure of operating profit as a percentage of the US shipbuilding revenue.

ASIC alleges that on 4 June 2016, the company became aware that a writeback of at least US$90 million would be likely. This would turn the profit into a “significant loss”.

Austal did not reveal this change of fortunes publicly until an announcement to the ASX on 4 July. That announcement flagged a writeback of US$115 million and a statutory EBIT loss between $116 and $121 million for the financial year.

Austal accused of breaching continuous disclosure laws

ASIC will allege in court that the Western Australian shipbuilding business breached continuous disclosure obligations between 6 June and 4 July 2016.

Austal is also accused of “misleading or deceptive conduct” for failing to correct or withdraw the prior earnings guidance.

The company’s chief executive at the time, David Singleton, is alleged to have violated the Corporations Act for his involvement in the non-disclosure, and “failing to exercise reasonable care and diligence as a director”.

ASIC is seeking both declarations and financial penalties from the Federal Court.

In a statement to the ASX on Thursday morning, Austal indicated it would consider the court filings before “deciding its next steps”.

Austal shares were down 3.02% on Thursday morning, to trade at $2.25. The business currently has a market capitalisation of $809 million.

During the 2016 financial year, a major source of revenue for Austal was from its US operations, thanks to large contracts with the US Navy.

ASIC on Thursday acknowledged the US Securities Exchange Commission for its assistance with the Austal investigation.

The post ASX company, ex-CEO accused of failing to reveal massive earnings downgrade appeared first on The Motley Fool Australia.

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Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Austal Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Newcrest Mining Ltd (ASX: NCM) share price is lifting slightly today after the company announced an exploration update for its two potential growth projects.

The Newcrest share price is trading at $27.64 at the time of writing, up 0.51%.

What did Newcrest Mining announce?

The miner announced an exploration update for its Red Chris and Havieron projects. Both projects are currently undergoing drilling exercises with pre-feasibility studies on the horizon.

Newcrest is carrying out growth drilling at Red Chris to define additional inferred mineral resources. The key target and resource areas include the Main Zone, East Zone and East Ridge.

Today’s announcement advised that drilling activities have continued to expand the higher grade mineralisation intersected at East Ridge and the Main Zone.

Newcrest CEO Sandeep Biswas commented:

We are also excited by our continued exploration success at Red Chris, with drill results from East Ridge and Main Zone expanding the footprint of the higher grade mineralisation.

East Ridge is our new discovery that is located outside of our initial Red Chris Mineral Resource estimate with drill results to date supporting the potential for resource growth at Red Chris over time.

Drill results in the Main Zone have confirmed the potential for higher grade mineralisation which could support additional mining fronts beneath and to the south west of the open pit.

Havieron is another growth prospect within Newcrest’s gold mining portfolio. The company previously completed infill drilling activities, increasing its confidence in the continuity of high grade gold mineralisation. A growth drilling program is currently underway, focused on expand existing resource estimates.

Newcrest highlighted that “growth drilling continues to return significant high grade extensions to the South East Crescent zone”. With management saying that:

Our extensive growth drilling program has delivered several new exciting high grade intercepts at Havieron, including 85m @ 11g/t Au and 0.29% Cu.

These results highlight the potential for significant high grade depth extension of the South East Crescent zone.

Newcrest Mining share price snapshot

The Newcrest Mining share price is up 2.15% year-to-date, broadly coinciding with the flat year-to-date performance of gold prices.

Newcrest Mining shares have struggled to find headway ever since gold prices topped out at US$2,075 in August last year. During this time, Newcrest shares soared to near record highs of $38.15.

The post The Newcrest (ASX:NCM) share price nudges up after exploration update appeared first on The Motley Fool Australia.

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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This time last year, the Bubs Australia Ltd (ASX: BUB) share price seemed to be heading into the stratosphere.

Shares in the ASX infant formula manufacturer had quickly recovered from the COVID-19 market crash in March and had soared well over 100% higher in less than 2 months. But, since then, things have been decidedly less rosy, with the company’s shares trending consistently lower.

The Bubs share price is now valued at just 38.5 cents, only slightly above its 52-week low of 31.5 cents seen on 11 May. This puts Bubs shares down by more than 35% this year.

Company background

Bubs produces a range of infant milk formulas, as well as other food and vitamin supplements for babies and toddlers. The Australian-based company promotes itself as a premium, healthy alternative to other brands, and sources mainly organic ingredients for its products.

As well as cows’ milk formulas, Bubs also has a range of products made with Australian goats’ milk. This can be easier to digest for babies and toddlers who are more sensitive to lactose.

The company has had quite a lot of success in recent years by targeting the Chinese market. Prior to the pandemic, in the first half of FY20, Bubs reported 19% of its revenues had come directly from China.

The “daigou” channel also accounted for a major part of the sales increase within Australia. Daigou refers to the practice of shoppers in overseas markets purchasing products (mainly luxury items, but also groceries and infant formula) to export directly to individual consumers back in China.

Recent financials

Jump forward to today, and market conditions look a lot different. In the company’s most recent financial update, released on 30 April and covering the third quarter of FY21, Bubs reported a 40% decline in gross revenues versus the third quarter of FY20 (to $11.8 million). Despite this, the Bubs share price jumped 5% higher at the time of the release.

Some of this decline was blamed on “pantry stocking” in the prior comparative period – referring to consumers buying more basic items to see them through lockdowns last year. However, daigou sales were also down 15%, contributing to an overall decline in domestic sales of 52%.

Despite the big drop in sales, there were still some promising green shoots to take from the results. Although daigou sales were down versus the prior comparative period, sales through these channels actually increased 19% quarter-on-quarter, showing that sales momentum may be starting to rebuild.

In addition, exports of Bubs-branded products directly to China have remained strong throughout the pandemic, and increased 42% versus the third quarter of FY20.

Change in China strategy

Also included in the company’s third quarter FY21 update was the announcement that Bubs had decided to scrap its joint venture with Chinese infant nutrition company Beingmate Co Ltd.

Bubs now plans to set up its own wholly owned subsidiary in China, which should allow it to have more control over sales. As Bubs chair Dennis Lin commented: “Under the new fully controlled China entity, we will have our own China sales structure and the flexibility to leverage profitable growth opportunities.”

Foolish takeaway

Despite challenging market conditions, investors will be hoping the company’s new approach to China will result in some good news for the Bubs share price.

While domestic sales have declined, Bubs has continued to focus on the fast-growing Chinese market, and it will be fascinating to see whether the company’s changing strategy in the region will translate into higher revenues.

Shareholders will be hoping the rewards will justify the risk.

The post The Bubs (ASX:BUB) share price is down 35% in 2021 appeared first on The Motley Fool Australia.

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• ASX 200 shares hit all-time high! How did we get here?

Motley Fool contributor Rhys Brock holds shares in Bubs Australia Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended BUBS AUST FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Companies are borrowing big as they gear up to chase the earning upgrade cycle, according to data from Australia’s biggest bank.

Commonwealth Bank of Australia (ASX: CBA) reported a 21% surge in equipment and machinery financing in May compared to the same time last year.

Government incentives and the resurging economy is prompting companies to increase their capex, and several ASX shares could get a nice earnings boost from this trend.

Companies investing to chase higher profits

We have seen more companies issue earnings upgrades than downgrades recently. The RBA’s forecast 4.75% growth for the Australian this calendar year is fuelling the upcycle.

Australian companies are buying more equipment and expanding their operations to keep pace with demand.

The federal government’s tax incentives for businesses to invest is providing an important second tailwind too.

Sectors benefiting from capex boom

This puts a number of sectors in a sweet spot to reap the benefits, according Commonwealth Bank.

“The construction industry in particular, has benefited from multiple government stimulus packages, including record investments in public infrastructure projects and the Homebuilder grant,” said CBA’s Executive General Manager Business Lending, Clare Morgan.

“We’re also seeing strong demand for vehicle financing and machinery, particularly in the food manufacturing and agriculture sectors.”

ASX shares best placed to profit from increase spending

This explains why construction materials shares on the ASX have outperformed this year. The Boral Limited (ASX: BLD) share price and BlueScope Steel Limited (ASX: BSL) share price are but two examples.

The sharp rebound in vehicle sales has also put the Eagers Automotive Ltd (ASX: APE) share price and ARB Corporation Limited (ASX: ARB) share price in the overtaking lane.

Caterpillar equipment dealer Seven Group Holdings Ltd (ASX: SVW) should also be smiling in the current environment.

Morgan noted that demand for agriculture machinery is the highest she’s seen in several years.

Bright outlook for these other ASX shares

If agriculture is booming, then other ASX suppliers to the sector should also be well placed to deliver improved results. The Nufarm Ltd (ASX: NUF) share price and Elders Ltd (ASX: ELD) share price are among the more obvious names in this space.

Meanwhile, IT equipment retailers are also making hay while the sun shines. CBA recorded a 43% increase in computers and a 75% increase in laptops financed as people look for ways to stay connected remotely.

But investors in JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN) probably have already caught on to this fun fact.

The post The ASX shares benefiting the most from the company spending boom appeared first on The Motley Fool Australia.

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Brendon Lau owns shares of Commonwealth Bank of Australia, BlueScope Steel Limited, Elders Ltd, Nufarm Limited and Seven Group Holdings. Follow me on Twitter @brenlau.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ARB Corporation Limited and Elders Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) subsidiary Google has agreed to pay French regulators 220 million euros as part of a settlement in an antitrust case.

The 220 million euros — about $268 million — is just a slap on the wrist for the advertising giant, which generated $16.4 billion in operating income in the first quarter alone. The bigger penalty is the changes Google agreed to make with how it conducts its ads business, and Google may preemptively follow the same course in other markets.

Here’s what investors need to know.

Too much control over data

The antitrust case brought forth by French authorities alleged Google privileged its own ad-buying tools — Google AdX and DoubleClick for Publishers — by allowing data to flow more freely between the two services.

Here’s how that works in practical terms. When a publisher wants to fill excess ad inventory on its website, it uses a supply-side platform to put it up for auction across ad exchanges. Ad buyers are able to place bids on an exchange based on various criteria known about the website and the visitor.

The ad server will collect bids across multiple exchanges, and it fills inventory with the ads from the highest bidders across all the exchanges it works with. Google’s server, formerly known as DoubleClick for Publishers, is one of the most popular among publishers.

But Google also operates an exchange, AdX. Google’s ad server can collect data on what it saw on other exchanges, such as the price of winning bids, and it can (and currently does) share those data with AdX bidders. Additionally, AdX worked well with Google’s own ad server, but it doesn’t work so well with competing ad servers, reinforcing the use of DoubleClick for Publishers among website operators.

That free exchange of data among Google’s products while limiting data and use for other ad tools is what upset publishers and convinced regulators to act.

What’s changing?

Google plans to develop some solutions to address the issues brought forth in the case.

First, it intends to make it easier for bidders on other exchanges to access data from its ad server, including the minimum bid to win for auctions it previously privileged AdX with. The company mentioned it could face a technical challenge in some cases where bids take place outside of its ad platform, but it will work to offer as much data as it can.

Additionally, Google said it will be “implementing product changes that improve interoperability between Ad Manager and third-party ad servers.” In other words, it won’t force (for lack of a better word) publishers to use its own ad server in order to get access to bidders on its ad exchange.

On top of that, the company reaffirmed its commitment not to use data from other supply-side platforms on its own ad exchange in a way its competitors are incapable of reproducing.

Importantly, these changes may not be exclusive to France. In a blog post announcing the moves, the company wrote, “We will be testing and developing these changes over the coming months before rolling them out more broadly, including some globally.” Google may make the changes preemptively as it faces the threat of antitrust accusations all over the world. It could help mitigate any regulatory fines the company attracts in the future.

What it means for investors

Google’s Ad Manager — which now encompasses both its exchange and server products — is part of Alphabet’s Google Network segment. In 2019 and 2020, Google Network ad revenue accounted for nearly 16% of Google’s total ad revenue. That’s not massive, but it’s still significant nonetheless. The segment’s growing roughly in line with ad revenue from Google’s own properties outside of YouTube.

Implementing the changes above globally will likely have a negative impact on revenue growth from the segment going forward. So, it could fall to become a smaller piece of the business over time as YouTube and Google’s own websites grow faster. 

Moreover, it’s an admission that Google isn’t completely immune to antitrust regulators making significant changes to its business practices, and that additional antitrust cases around the world could impact revenue further.

That said, the threat of increased regulation has been a major risk when investing in FAANG stocks for some time. Investors that are comfortable with the risk may still find Alphabet shares attractive, especially as the market digests the news about the settlement in France.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Google’s making an important change to its ad business appeared first on The Motley Fool Australia.

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Adam Levy owns shares of Alphabet (C shares). Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Alphabet (A shares) and Alphabet (C shares). The Motley Fool Australia has recommended Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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