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As Antitrust Probes Ramp Up, Facebook, Amazon, Google Investors Should Fear These Charts

For now, most observers will likely scoff at "breakup risk", but...

“Concentration in the digital advertising market has pushed local journalism to the verge of extinction”, Representative David Cicilline, a Rhode Island Democrat, said Tuesday, during the first hearing on the outsized dominance of Google, Amazon, Facebook and Apple.

Cicilline heads up the House Judiciary Committee’s “top to bottom” review, which is set to run in parallel to twin-antitrust probes by the FTC and Justice Department. Lawmakers, though, worry that regulators have been derelict in their duties. “I have very serious concerns about the FTC’s commitment to these issues”, Cicilline told reporters Tuesday.

“Smaller news organizations don’t stand a fair negotiating chance when they try to negotiate deals with the platform giants”, Republican Doug Collins (who co-authored a bill with Cicilline aimed at giving news organizations a stronger hand in talks with big tech). “These giants stand as a bottleneck — a classic antitrust problem — between consumers and the producers of news content”, Collins added.

Earlier this month, news of the FTC and DoJ probes rocked tech shares. The push to investigate the companies has broad bipartisan support. Crucially, Elizabeth Warren and Donald Trump have spoken out on the need to review America’s tech behemoths, although, as Trump made clear on Monday, the White House is more concerned about “discrimination” against conservative voices (namely Trump supporters and conspiracy theorists) than it is about anti-competitive practices.

Read more: Trump To Big Tech: ‘If Anybody Is Gonna Sue You, It Should Be Me!’

While analysts have generally played down the risk of an actual forced, Warren-style breakup of any of the companies mentioned above, these investigations are likely to bring to the public’s attention a series of rather alarming statistics about just how dominate the firms really are. As with any alarming statistics, the numbers make for astonishing visuals that may help galvanize public opinion.

“Based on the Herfindahl-Hirschman Index, two-thirds of industries experienced an increase in concentration during the past 20 years”, Goldman writes, in a note dated Tuesday.

(Goldman)

Goldman then gives you a granular breakdown. “Today, the most concentrated areas of the US equity market are Tobacco and Interactive Media & Services based on sales”, the bank continues, adding that “within Interactive Media & Services, Google and Facebook account for 87% of 2018 US industry sales (63% and 24%, respectively).”

(Goldman)

Clearly, regulatory risk to so-called “superstar” firms is rising. For a market that has, at various intervals, depended on big-cap tech to play Atlas by shouldering the burden of the financial world, heightened scrutiny isn’t a particularly welcome development.

The following two visuals depict, from left, equity market concentration and the share of sales captured by mega firms in their respective industries.

(Goldman)

Next, Goldman shows you a pie chart illustrating Google’s share of global search. Everyone knows these numbers, but the visual always comes across as particularly poignant. On the right is a bar chart which shows Google, Facebook and Amazon are set to account for a combined 68% of US net digital ad revenue.

(Goldman)

Finally, have a look at mobile OS concentration (left) and market share of US online retail sales (right).

(Goldman)

Again, these visuals paint a striking picture. While there’s all manner of nuance to be had, lawmakers and, importantly, the public, aren’t going to care about the finer points – or at least not initially.

These companies have undoubtedly improved the lives of hundreds of millions of people across the globe, but that kind of footprint invariably entails collateral damage. Big tech’s list of enemies multiplies commensurate with the increase in that collateral damage.

And people are taking notice. “Consistent with where rhetoric has been focused, regulatory uncertainty has posed a headwind to stock performance within Software, Media & Entertainment, Tech Hardware, Semis, and Retailing during the past three years”, Goldman goes on to write, observing that “these industries have exhibited the strongest negative correlation with changes in the regulation component of the Economic Policy Uncertainty Index, as investors consider the risk of slower growth and lower profitability.”

(Goldman)

The more spirited the antitrust debate becomes amid the House probe and simultaneous investigations by the FTC and DoJ, the more reptuational risk is likely to be priced into shares of companies in the crosshairs.

(From The Verge: “2020 presidential candidate Sen. Elizabeth Warren put up a billboard in the heart of Silicon Valley. The billboard is located at 4th and Townsend, right next to the city’s primary Caltrain stop, where a substantial chunk of South Bay technology workers arrive each morning”)

For now, most observers will likely scoff at “breakup risk”.

But nobody should underestimate the lengths politicians will go to in order to placate voters when public opinion becomes galvanized around a highly-charged issue.


 

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2 comments on “As Antitrust Probes Ramp Up, Facebook, Amazon, Google Investors Should Fear These Charts

  1. This political operation will have no effect. Big tech is only the most visible part of this. It is pervasive and growing. Algorithms that generate, aggregate and target content will continue to advance and spread. Can we hope that the audience learns how to use reason and judgement instead?

  2. The people who scoff will be safe for a long time. These investigations take a long time, and will be hard fought if the go forward. Any modifications to existing law giving the government an easier path to a remedy are even further away. And I think even Elizabeth Warren’s proposals, which depend upon her election and a sympathetic House and Senate, are misunderstood as a general plan to break up the companies. Her proposal is more focused on preventing them from using power in one vertical to gain an advantage in another market. That still leaves these companies with power in their primary market, assuming they achieved that status legally. It sounds like one of those issues that will gain attention from time to time, and then be forgotten.

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