Here we go again. The antitrust regulatory risk for Big Tech dominated the headlines this past week. But does the government’s new threat have any teeth, or are worries for investors inflated?
The Justice Department announced late Tuesday that it has opened a review of “the practices of market-leading online platforms.” The agency didn’t name specific companies, but the wording suggests that it will look into Google parent Alphabet (GOOGL) for search, Facebook (FB) for social media, and Amazon.com (AMZN) for e-commerce.
The Justice Department will also assess the online marketplace to ensure companies are competing on the merits of their services, which could suggest Apple ’s (AAPL) and Google’s app-store practices will be reviewed.
The market shrugged. All four stocks barely moved the following day. Investors may have learned a lesson when the same four companies lost more than $130 billion in aggregate market value on June 3 after multiple antitrust-inquiry reports. The one-day selloff proved to be a buying opportunity, as the stocks have rallied about 15% to 20% since.
At the time, Barron’s suggested antitrust fears may be overblown (“Weighing the Antitrust Case Against Google, Apple, Amazon, and Facebook,” June 7). Following the latest news, our view hasn’t changed.
History has shown the government tends to either lose in court—such as its bid to block AT&T's (T) acquisition of Time Warner and its order to break up Microsoft (MSFT)—or settle. In most cases companies agree to fines and peripheral business-practice changes, but nothing that will affect core business models.
Now, more evidence has emerged that the outcome may not be overly punitive. On Wednesday, the Federal Trade Commission and Facebook announced a $5 billion penalty over user-privacy practices from last year’s Cambridge Analytica scandal—“the largest ever imposed on any company for violating consumers’ privacy.”
While the figure may sound large, it is relatively small for a company with $49 billion in cash and which is estimated to make $18 billion in net income this year. When the settlement figure was first reported, Facebook shares rallied.
Moreover, proving consumer harm is a tough task when Facebook’s and Google’s services are mostly free, and Amazon’s e-commerce platform has arguably lowered prices and increased convenience through faster delivery.
In fact, none of the companies have traditional monopoly positions in various markets. EMarketer estimates that Amazon represented 37% of U.S. e-commerce sales in 2018 and 3.5% of total retail sales. The firm also said Google accounted for 50% of U.S. digital-ad spending that year, while Facebook had 22%. Apple’s iPhone had 45% of the U.S. smartphone market, according to eMarketer’s latest data.
“Facebook and Google are large in digital advertising, but quite small in global advertising,” says Marcelo Lima, a hedge fund manager at Heller House. “The same is true for Amazon: large in e-commerce, small in retail sales. There is no reason to narrowly define these markets as digital only.”
David Nelson, chief strategist at Belpointe Asset Management, says antitrust laws are antiquated and require new legislation to go after digital-age companies.
Daniel Ives, a Wedbush Securities analyst, agreed and wrote that he finds any major legislation “exceedingly unlikely.”
Investors should ignore the regulatory noise and focus on Big Tech fundamentals instead.
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