WASHINGTON – Pressure is rising on Big Tech firms, signalling tougher regulations in Washington and elsewhere that could lead to the break-up of the largest platforms.
But, you would hardly know it by looking at their share prices.
Shares in Apple, Facebook, Amazon and Google parent Alphabet have hovered near record highs in recent weeks, lifted by pandemic-fuelled surges in sales and profits that have helped the big firms extend their dominance in key economic sectors.
The Joe Biden administration has given signs of more aggressive regulations with the appointment of Big Tech critics to the Federal Trade Commission.
But, that has failed to dent the momentum of the largest tech firms, despite tough talk and antitrust litigation in the United States and Europe, with US lawmakers eyeing moves to make antitrust enforcement easier.
Big Tech critics in the US and European Union want Apple and Google to loosen the grip on their online app marketplaces; more competition in a digital advertising market dominated by Google and Facebook; and, better access to Amazon’s e-commerce platform by third-party sellers.
One suit tossed out by a judge, but is in the process of being refiled, could force Facebook to spin off its Instagram and WhatsApp platforms, and some activists and lawmakers are pressing for break-ups of the four tech giants.
All four have hit market valuations of above US$1 trillion (RM4.24 trillion), with Apple over US$2 trillion. Alphabet shares are up some 80% from a year ago, with Facebook up nearly 40% and Apple almost 30%. Amazon shares are roughly on a par with last year’s level after breaking records in July.
Microsoft, with a US$2 trillion valuation, has largely escaped antitrust scrutiny, even as it has benefited from the cloud computing trend.
The surging growth has stoked complaints that the strongest firms are extending their dominance and squeezing out rivals.
Yet, analysts say any aggressive actions, in the legal or legislative arena, could take years to play out and face challenges.
Fast-moving environment
“Break-up is going to be nearly impossible,” said analyst Daniel Newman of Futurum Research, citing the need for controversial changes to antitrust laws.
He said a more likely outcome would be multibillion-dollar fines that the companies could easily absorb as they adjust their business models to adapt to problematic issues in a fast-moving environment.
“These companies have more resources and know-how than the regulators.”
Dan Ives of Wedbush Securities said any antitrust action will likely require legislative change – unlikely with a divided Congress.
“Until investors start to see some consensus on where the regulatory and law changes go from an antitrust perspective, it’s a contained risk, and they see a green light to buy tech.”
Other factors supporting Big Tech include a massive shift to cloud computing and online activities that allow the strongest players to benefit, and a crackdown in China on its large technology firms.
“The China regulatory crackdown has been so massive in scale and scope (that) it has driven investors from Chinese tech to US tech,” said Ives.
“Even though there is regulatory risk in the US, it pales in comparison with the crackdown we’re seeing from Beijing.”
Analysts say the tech titans are also well-positioned to deal with tougher regulations.
Tracy Li of investment firm Capital Group said in a recent blog post that tech giants face major risks in regulations on privacy, content moderation and antitrust.
“Concerns related to privacy or content may actually strengthen, rather than weaken, the moats of the largest platforms.
“These companies often boast well-established protocols, and have more resources to tackle privacy and legal matters.”
Facebook ‘gold mine’
Other analysts point to the swift movement by tech firms to adapt their business models in contrast to the slow efforts to regulate.
Facebook, for example, is adapting to changing conditions by moving into the “Metaverse” of virtual and augmented reality experiences, said Ali Mogharabi of Morningstar.
He said Facebook’s vast data collected from its 2.5 billion users gives it the ability to withstand a regulatory onslaught.
“Antitrust enforcement and further regulations pose a threat to Facebook’s intangible asset: data,” said the analyst in a July 29 note.
“However, increased restrictions on data access and usage will apply to all firms, not just Facebook.”
Independent analyst Eric Seufert tweeted: “Regulatory changes will have a significant impact on Facebook’s business, but the sheer scale of Facebook and the growth trajectory of digital advertising ameliorate that. Facebook’s gold mine is far from depleted.”
Newman said the large tech firms have expanded during the Covid-19 pandemic by delivering innovative services, extending a trend that has seen the strong get stronger.
“These platforms have created better experiences for consumers, but it is extremely difficult for new entrants.”
For investors, he added, “that means no one is creating revenue and profit growth faster”. – AFP, August 15, 2021
