New York: The U.S. government probably won’t go for “nuclear options” like forcing Alphabet Inc.’s Google, Facebook Inc. and Amazon.com Inc. to break up, analysts said. That may set up battered tech stocks for a rebound after antitrust fears erased more from $130 billion in market values Monday.
Any recovery was off to a tepid start Tuesday. Google and Amazon each rose about 0.6%, underperforming advances in S&P futures, while Facebook was little changed. On Monday, the stocks posted their biggest losses in at least two months, wiping out a combined $125.5 billion in market value. Apple Inc. also fell, erasing another $8.1 billion in market value.
Raymond James called Monday’s pullback in the shares of the tech giants a buying opportunity. “We believe valuations are attractive” following the sell-off, particularly for Google and Facebook, analyst Aaron Kessler wrote in a note. Although investigations may continue, investors will probably focus on “solid” core fundamentals at the companies, as long as there are no material fines or actions, he said.
“The biggest impact may be that future acquisitions of size will be much harder to do,” Kessler added — though most investors were likely already assuming big deals were going to be tough.
Rosenblatt Securities’s Mark Zgutowicz in a note called the likelihood of a Facebook breakup “nil,” although he added that headline risk has gone up. Zgutowicz noted that in March, when a new FTC task force was “put in place to consider unwinding consummated M&A of tech giants,” he’d said a forced Instagram spin-off wouldn’t deliver “sought-after anti-competitive restitution,” and therefore he saw a break-up as “ low probability.”
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“Nuclear options” such as mandated breakups of Google, Facebook or Amazon, or exposing search or feed algorithms, are “fairly low,” Baird’s Colin Sebastian wrote in a June 3 note. He saw a moderate chance for antitrust actions that fall short of breakups, and expected there may be privacy and security regulation.
Baird called out one possible “refuge” for Facebook and Google: Regulators have in the past emphasized “consumer harm,” while both companies offer free services. He added that growth at Facebook, Instagram and Amazon have boosted competition for Google, while regulating search might hurt businesses.
At the same time, Sebastian warned investigations may present “distractions,” and cited the risk of government overreach. Government policy concerns have already impacted “private sources of capital, and in some cases, company expansion plans and even hiring,” the firm notes. They also expect that punishing “big tech” will gain traction ahead of the 2020 Democratic primaries. Alibaba Group and Amazon may outperform other FANGs under a “specter of government intervention.”
On Monday, Citigroup analyst Mark May said Google and Facebook face little risk to their businesses from potential U.S. government investigations into anti-competition behavior. For Google, the worst case scenario of a new U.S. investigation would probably be similar to what occurred in Europe, where Google paid a large fine but wasn’t forced to significantly alter its business model. The case for anti-competitive behavior by Facebook is “even less clear than it is for Alphabet,” wrote May, adding that it isn’t a “meaningful risk factor.”
Beacon Policy Advisors concurred that Facebook probably faces less antitrust risk than Google, even though it’s borne the brunt of Washington’s “tech-lash” since the 2016 election. Beacon in a note saw the DOJ and FTC as likely to take more “preliminary steps” in months ahead to better understand how Google, Facebook and Amazon operate. –Bloomberg
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