The US Presidential election will have major historical and economic impacts. As the odds indicate an increasing chance that Democrats will win the presidency and take control of the Senate, certain sectors like alternative energy and cannabis have been strong. While, others have underperformed.
The Democrats are seeking newer and tougher antitrust laws and are even recommending a split of some of the top American tech companies. Some of the party members like Amy Klobuchar from Minnesota and Elizabeth Warren from Massachusetts have targeted FB and GOOG previously. If they assume office in November, the chances of action against these tech giants increase.
On October 13, a 449-page report released by the antitrust subcommittee of the House Judiciary Committee attacked the four companies on apparent misuse of their monopoly power. Cicilline’s subcommittee report, which is expected soon, also advocates a break up of four of these conglomerates and place curbs on any further acquisitions by them. The report alleges that these four companies have acquired smaller companies to stifle competition and establish a monopoly.
Democrat Elizabeth Warren told Market Watch, “When Democrats win in 2020, it should be a top priority for us to stop these giants from rigging the rules in their favor and against everyone else.”
Let us take a look at each of these stocks to understand how they are placed if these stringent antitrust rules come into power:
Apple Inc. (AAPL)
The biggest factor that has placed AAPL at the center of the antitrust investigations is its policies related to its App Store. To be a part of the ecosystem, the iPhone maker charges close to 30% commission on both app sales and in-app purchases. Most of the in-app purchases also need to be routed through AAPL’s payment system.
One of the major complaints was filed by Spotify (SPOT), a competitor to Apple Music, to the European Commission in 2019. While Spotify has to pay the app store commission and sacrifice a substantial portion of its revenue, Apple Music naturally doesn’t have to pay that charge. As a result, Spotify has alleged AAPL to resorting to unfair tactics. SPOT also raised an issue with the iPhone maker offering Apple Music by default on HomePod, Siri, and Apple Watch. In October 2019, the European Commission also cried foul over how AAPL’s near-field communication or NFC chip in iPhone supports only Apple Pay for payments.
The European Commission and the US Department of Justice are reportedly investigating the antitrust allegations on the iPhone maker. However, AAPL CEO Tim Cook has testified to the US House Antitrust Subcommittee that the company doesn’t resort to anti-competitive practices.
The probe may result in penalties worth billions, which could amount to at least 10% of AAPL’s revenue. It can even damage the market standing of the iPhone maker for the long term. If the Democrats take charge and impose stricter norms, AAPL could even lose a substantial portion of its client base created through its large ecosystem.
Facebook, Inc. (FB)
FB has been facing an investigation by 47 states led by New York about its ad pricing strategies. The social media giant also disclosed that the Federal Trade Commission is also probing potential antitrust violations during its acquisition of WhatsApp and Instagram. The report released on October 13 alleges that FB acquired the photo-sharing app, Instagram, to nip any competition in the bud.
Experts believe that FB has an opaque business model and hasn’t updated the consumers well about its moves and use of data and technology. This has placed the company on a weaker footing and it has fallen prey to antitrust investigations.
Last year, Sally Hubbard, the director of the enforcement strategy at the Open Markets Institute, also alleged that FB uses its digital advertising monopoly in innumerable ways to ward off competition from independent newspapers and journalism.
Morningstar estimates that the US government could impose fines up to $6 billion on FB if the report proves that the company was on the other side of the law. The tech giant may even be asked to divest its assets acquired through its WhatsApp and Instagram acquisition. However, some feel that this is a distant probability.
Amazon.com, Inc. (AMZN)
The House Judiciary Committee’s report also has Amazon under scrutiny. The findings allege that the e-commerce giant has gained nearly 50% of the market share in the US through anti-competitive practices. This market share data varies significantly than what is reported by the market research firm, eMarketer. The findings stated that AMZN procures data through unfair means from third-party sellers and uses it to push its products over that of its competitors. The e-commerce giant gives more preference to its brands and showcases its merchandise on virtual showcases.
Besides, the Democrats also highlight how AMZN supposedly charges high-fees from its sellers and leaves them with no negotiating scope. Due to the seller’s heavy dependence on AMZN’s sales logistics, there is little that they can do about it. The company is also said to penalize its sellers heavily if they are found to sell their merchandise at lesser quotes on other e-commerce portals.
AMZN has however refuted all these claims through a company blog post and called these allegations as ‘baseless.’ The company also explained that it does face intense competition from ‘brick-and-mortar’ stores and works for the benefit of the customers.
If Joe Biden wins the Presidential election and cracks down heavily on the big techs, AMZN would have to pay a heavy price. If the regulations become stiffer, the e-commerce giant may have to offload many of its brands and businesses. This could have a harsh impact on its balance sheet.
Matters could be worse for Amazon Prime which holds many aspects of the business under a single umbrella. It not only offers special shopping deals for members but has emerged as a streaming platform and movie studio, all rolled into one.
Alphabet Inc. (GOOGL)
GOOGL isn’t new to antitrust investigations. These probes are also not just confined to the US. Two years back, the EU imposed a record penalty of $5 billion on GOOGL for unfair business practices related to its Android operating system. The probe alleged that GOOGL formed deals with phone makers with a condition to pre-load their apps.
The House Judiciary Committee’s report highlights how Google allegedly embezzled content from third parties using its search monopoly and promoted its in-house offerings. It also levied search penalties to discourage third-party vertical providers like Yelp Inc. (YELP) and Expedia Group, Inc. (EXPE) in the process.
Another major antitrust issue against Google is that it supposedly placed “a series of anti-competitive contracts” that compelled the android smartphone users to depend on Google search by default.
In a report, Morningstar predicted that massive fines and ‘damaging regulations’ could cause a 15% decline in the valuation of GOOGL. The report also indicated that the US government could impose fines up to $13 billion on GOOGL for its likely older violations. Tuesday’s report is just the tip of the iceberg. Reports indicate that the DOJ might also file a lawsuit against GOOGL for indulging in anti-competitive business practices.
Amid looming uncertainty over the newer antitrust regulations, AAPL, FB, AMZN, GOOGL may have to face a lot of heat. Though these kinds of investigations take years to conclude, it definitely makes the investors edgy. A Forbes article indicates that the imminent antitrust battle could result in over $200 billion at stake for these tech giants. In such a scenario, it will be wise to stay away from these stocks for a while. Investors need to be watchful of how the matters unfold.
Want More Great Investing Ideas?
AAPL shares were trading at $119.56 per share on Friday afternoon, down $1.15 (-0.95%). Year-to-date, AAPL has gained 63.76%, versus a 9.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Namrata Sen Chanda
Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|AAPL||Get Rating||Get Rating||Get Rating|
|AMZN||Get Rating||Get Rating||Get Rating|
|FB||Get Rating||Get Rating||Get Rating|
|GOOG||Get Rating||Get Rating||Get Rating|
|GOOGL||Get Rating||Get Rating||Get Rating|
|QQQ||Get Rating||Get Rating||Get Rating|