The rise and rise of Big Tech stocks was one of the major investment themes of last year, but 2021 could have further challenges ahead for companies like Facebook [NDQ:FB] and Twitter [NYSE:TWTR] as governments wake up to their sheer size and influence in the market, and take steps to limit their roles.
For social media platforms like Facebook, their use by ‘bad actors’ to seek to influence political outcomes around the world has further muddied the waters. We fully expect to see Mark Zuckerberg in front of a Democrat-controlled Congress in 2021.
But US tech stocks are not alone in this – China also seems to be calling time on Alibaba [NYSE:BABA], having already pulled the plug on Ant Financial. Alibaba CEO Jack Ma seems to have dropped off the face of the planet and has not been seen or heard from in two months. Alibaba has also announced that it will be shutting down its Xiami music app (acquired in 2013) next month, due to “adjustments in business development.”
The Alibaba saga may be evidence of how investing in mainland Chinese companies is fraught with political difficulty – and always has been – but this is also part of a bigger international theme, where governments will be revisiting tech companies’ levels of influence (and low tax bills).
Alphabet Inc facing multiple anti-trust cases already
Google [NDQ:GOOGL] was hit with an anti-trust suit in October from the US Department of Justice for anti-competitive practices in the search engine market. Google has denied the allegations and says the case is deeply flawed, but it is facing the biggest anti-trust case in a generation, on a scale to that faced by Microsoft in 1998. Google was also sued by no less than 40 US attorneys generals on 17 December, which has stretched to allegations that Google is seeking to unfairly dominate newer technologies in smart speakers and connected cars.
“Ever since the CEOs of Amazon, Facebook, Google and Apple testified to the US congress last July, American legislators have become more vocal about the idea of bringing trust busting into the 21st century,” observes Giles Coghlan, Chief Currency Analyst at broker HYCM. “But what could this mean for investors? In my mind, this could actually be beneficial. If Mark Zuckerberg is forced to spin off Instagram and WhatsApp from Facebook, Facebook stockholders will have a choice as to which of these newly formed independent companies they wish to keep their equity in. Thus, such a development would actually bring more choice to investors as to where they want their assets to lie.”
Coghlan thinks a state-enforced break up of a company might be seen as positive news for investors. “Equity analysts often speak about how the greatest sign of a company doing well is being so large that it must be broken up,” says Coghlan. “As such, any of the big five could enjoy a stock price surge of up to 50% if the federal government moves forward with any plans to make them break up.”
Amazon in trouble with European regulators
Even Amazon [NDQ:AMZN], which has been a big beneficiary of the pandemic, is starting to attract unwanted political attention. Having been attacked in Europe already for its sharp tax practices, its use of non-public business data to leverage its dominance in key markets like France and Germany is also now coming under scrutiny in Brussels.
In our view, a Democrat-dominated Congress will include Big Tech on its agenda for 2021, and it is unlikely that large tech companies like Google are going to get off scot free with this administration, even though current anti-trust hearings are being scheduled for well down the road. Look out for rockier times ahead for Big Tech this year.