Image shown: Technology shares took a beating during the trading session June 3.
The DOJ and FTC are coming after Alphabet, Apple and Facebook, and we can’t help but feel the moves are in some ways politically motivated. Even if regulators decide to break up these companies, it doesn’t mean they will “confiscate” their businesses. Worst case scenario, perhaps pieces of their businesses would be auctioned off at arguably above-market prices, which could be a net positive.
By Brian Nelson, CFA
Nobody seemingly wants big “new” tech to win, and while such a dynamic may counterintuitive turn them into great long-term investments as a result, the stock-price behavior by some of the tech heavyweights, including Alphabet (GOOG, GOOGL) and Facebook (FB), continues to frustrate. Seemingly anytime these behemoths make a turn for the better, something comes out of the woodwork to knock them back down.
We’d be foolish to believe that the odds are purposely stacked against them, but when it comes to search technology and posting pictures online, one might think government regulators have better things to do? Apparently not. The DOJ is now investigating Alphabet to see if they should break up the company. While some are pointing this out to be a positive development (which it might be), at the core we think the news is utterly ridiculous. Shares traded off aggressive during the session June 3.
Not only is the DOJ looking to break up Alphabet, but it is also probing Apple (AAPL). Further, news hit the wire that the FTC is evaluating Facebook’s effects on digital competition. We’re not sure what the FTC is looking into, but if anything, Facebook has leveled the playing field when it comes to digital rivalries. At no time in history can a company enter an industry and compete toe-to-toe and easily with industry behemoths on a neutral field/platform such as Facebook. We’re just not sure why the DOJ and FTC are pursuing such initiatives.
In some ways, we can’t help but feel the moves are politically motivated, perhaps encouraged by a Republican White House that has faced unfair criticism from the media at times. What is important to note, however, is that Google and Facebook are not the media. These companies have made the lives of Americans a lot easier, even if we do have some reservations about social media, and they have only increased competition within and across industries.
We don’t agree with the decision to launch the investigations, and we’re maintaining our fair value estimates for Alphabet, Apple and Facebook. Even if regulators decide to break up these companies, it doesn’t mean they will “confiscate” their businesses. Worst case scenario, perhaps pieces of their businesses would be auctioned off at arguably above-market prices, which could be a net positive.
All things considered, we think regulators and the markets are making a mountain out of molehill. It will be years before there may be any material decision stemming from these investigations, but the overhang may only serve to further depress market confidence in Alphabet’s, Apple’s and Facebook’s shares, which have been under pressure for several months.
Related: XLK, SOCL
—–
Brian Nelson does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.