Wedbush: FAANG antitrust hearings more bark than bite

From a note to clients by analyst Daniel Ives that landed on my desktop Tuesday:

For Facebook there was a lot of focus on its new cryptocurrency, Libra as well as Calibra, its newly formed subsidiary providing financial services… Google was probed on YouTube as well as its search engine’s algorithms and if they keep consumers safe while also not to favor their products in search results. For Amazon questions focused on third party sellers on its platform and how the company keeps the playing field level vs. the likes of its own products. In Apple’s case regulators were mostly focused on the AppStore, not hesitating to bring up the Spotify issue as the company responded that it charges a 30% fee for in app purchases and it relies on a thriving ecosystem. (emphasis mine)

We reiterate our belief that this broader Beltway vs. Big Tech battle is more bark than the bite of broader structural changes across the tech food chain… Current antitrust law does not provide for a forced breakup solely due to the size of the business; if it did, Walmart would have been broken up decades ago. Instead, the objective standard is whether a company engages in anti-competitive behavior, thereby driving up prices for consumers. In our opinion a broad movement to break up large tech companies solely because of their size will fail without a change to existing antitrust laws; and in order to change the laws Congress would have to agree, which we view as exceedingly unlikely. We ultimately expect a “no harm, no foul” outcome on these FAANG names as the 202 area code comes knocking as we continue to be bullish on FAANG plays into the rest of 2019/2020.

My take: Apple got off easy. Its witness, chief compliance officer Kyle Andeer, fielded so few questions in the first round that Rep. Kelly Armstrong (R, N.Dak.) threw him a few softballs in the second round just to even things out. (Sample Q: “Is Apple more of a hardware business, a software business or a platform business?”)

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5 Comments

  1. Jerry W Doyle said:

    “… In our opinion a broad movement to break up large tech companies solely because of their size will fail without a change to existing antitrust laws; and in order to change the laws Congress would have to agree, which we view as exceedingly unlikely. We ultimately expect a “no harm, no foul” outcome on these FAANG names as the 202 area code comes knocking as we continue to be bullish on FAANG plays into the rest of 2019/2020.”

    Excellent analysis! I, ever the laconic one, have nothing to add. -:)

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    July 17, 2019
    • David Emery said:

      If there’s any consensus for new legislation, it’s most likely for privacy protections, and Apple is already in pretty good shape for that.

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      July 17, 2019
      • Jerry W Doyle said:

        Oftentimes our minds are cluttered by the present when considering events. I do wish to throw in a caveat of which we all need to be cognizant fully. That caveat is the outcome of the 2020 elections.

        If the Democrats were to take leadership of both Houses of Congress and if the Democratic Party’s nominee is someone such as Elizabeth Warren or Bernie Sanders, then you have a propitious political environment of legislative control for a bill to amend existing antitrust laws targeting the break-up of the FAANG companies, including Apple. Elizabeth Warren also has Apple in the crosshair of her firing range of companies to break-up.

        In summary, if the Democrats control the House, the Senate and someone such as Elizabeth Warren or Bernie Sanders is sitting in the Oval Office of the Executive Branch, then yes, I do believe the break-up of the FAANG companies most likely will happen where Democrats control all three branches of government. A bill could be written that would give legislative authorization and that likely could withstand the scrutiny of later judicial review passing both Houses of Congress and signed willingly into law by someone such as Elizabeth Warren or Bernie Sanders. This is a different Democratic Party than the Democratic Party of past years of which I experienced.

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        July 17, 2019
  2. Fred Stein said:

    Re Apple, there’s no story, no threat, no monopoly, no way for politicians to score points.

    Apple is well run. That’s not a crime.

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    July 17, 2019
    • David Emery said:

      “no way for politicians to score points” – as if that has any bearing on -facts-??

      But there is a story, even if it’s not particularly strong. The threat from Apple to the data suckers (FB, Google, etc) is absolutely there, and there is an argument worth examining on the Apple Store as a potential monopoly.

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      July 17, 2019

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