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Long Story Short - Is Big Tech Too Big?
(Note: companies that could be impacted by the content of this article are listed at the base of the story (desktop version). This article uses third-party references to provide a bullish, bearish and balanced point of view; sources listed in the "Balanced" section)
Washington lawmakers have initiated an antitrust probe into FAANG and other big tech companies in order to review problematic practices relating to unfair competition and anti-consumer actions. The FAANG stocks; Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Google’s parent company Alphabet (GOOG, GOOGL), have previously maintained dominance in the market. The break up of these major tech companies may provide more value to shareholders as smaller entities.
Break up profitable for Shareholders: Professor Scott Galloway of New York University believes that breaking up big tech companies could be positive for shareholders. Galloway stated, “DoJ and the FTC are slowly but steadily getting it right, but the market on Monday got it wrong. Break them up and the spinoffs will be accretive to shareholders. There’s an opportunity for enormous value creation.” Big tech companies do not have the same innovation and do not provide as much value to shareholders as they possibly could as a smaller entity.
Past Company Break ups: Big tech companies such as AT&T Inc. (T) and PayPal Holdings Inc. (PYPL) have been broken up before and the components have provided a greater value for shareholders. Galloway stated to Bloomberg, “in almost every instance, maybe not in the short term, but in the medium and long term, the aggregate value of the spun companies is much greater than the original conglomerates.”
Parts are more Valuable: An analyst at John Blackledge, and his team reported that the value of AWS was at $506 billion of Amazon’s $905.6 billion total market capitalization. AWS could stand-alone as one of the world’s highest valued companies. Analyst Michael Olson at Piper Jaffray did a sum-of-the-parts analysis for Apple evaluating that one of the most successful segments was the services the company provided. His team valued Apple services at around 500$ billion while the products were at around 400$ billion of Apples 893$ billion market valuation. Analyst Eric J. Sheridan of UBS believes that a breakup of Google would lead to value for shareholders, stating, “in the case of any company breakup, we actually see unlocked value as the various pieces within [Alphabet’s] conglomerate would likely warrant a higher valuation.”
Recent Fears: So far in 2019, FAANG has suffered loses all round with Facebook down 8.5%, Amazon and Apple down 6% in a month. Netflix also has lost 1% while Google had taken the largest lose at 9%. FAANG has been hit by the recent fears of unsuccessful trade talks, new tariffs, and technology restrictions between the Trump Administration and Chinese President Xi. FAANG had suffered an estimated total lose of around 130$ billion market value lose.
Antitrust Regulations: House lawmakers and antitrust regulators have announced an antitrust probe initiated by Rep. David Cicilline, leader of the antitrust subcommittee, which will review big tech companies such as Facebook, Apple, and Google to see if they have engaged in anti-competitive practices which could harm consumers and limit market competition. Cicilline stated "the growth of monopoly power across our economy is one of the most pressing economic and political challenges we face today." The antitrust probe will be broad not targeting a specific company and should target problematic practices that big tech companies use to dominate social media and
Politicians Weighing In: Democratic Presidential candidate Elizabeth Warren has pushed for the break up of big tech companies specifically targeting FAANG. Elizabeth Warren stated “Google has too much power, and they're using that power to hurt small businesses, stifle innovation, and tilt the playing field against everyone else.” Elizabeth Warren along with several other Democratic and Republican politicians believe that it would be best to break up big tech companies who maintain dominance and may use their position as an unfair advantage over others. The mounting pressure from U.S. politicians has led to a decline in the market value of FAANG.
Beneficial to Both: Breaking up big tech companies may be beneficial to the company itself, competition, and the consumer. A break up would lead to new innovations in technology and the market in order which would provide the consumer with new products, and generate positive competition between companies. It would also help alleviate the regulatory pressure from Washington and possible future probes.
https://www.nasdaq.com/article/the-state-of-faang-stocks-and-why-they-shouldnt-be-broken-up-cm1161331, Richard Saintvilus, June 10, 2019
https://www.washingtonpost.com/technology/2019/06/03/facebook-google-other-tech-giants-face-antitrust-investigation-by-house-lawmakers/?noredirect=on&utm_term=.d78f5070caf9, Tony Romm and Elizabeth Dwoskin June 3, 2019
https://www.investopedia.com/why-breaking-up-apple-amazon-may-reap-rich-profits-for-investors-4690014, Matthew Johnston Jun 25, 2019
https://www.barrons.com/articles/breaking-up-tech-bullish-case-51559651095?mod=hp_LEAD_1, Eric J. Savitz June 4, 2019