With the world distracted by COVID-19, investors may have forgotten the threat posed by antitrust to some of Wall Street’s biggest names.
Recently, antitrust has taken a heightened interest in Big Tech, launching a number of investigations in recent years. As such, both Republican and Democratic Attorneys General have been participating in the antitrust discussion, showing a level of cooperation that not many other issues can induce.
Since last September there have been no less than 16 inquiries into Big Tech. The likes of Google (NASDAQ: GOOG), Amazon (NASDAQ: AMZN), and Facebook (NASDAQ: FB) owe, in part, their meteoric growth due to the antitrust laws which protected them from larger companies in their early days. So why are Google and Amazon now in violation and what does this mean to investors?
Antitrust Vs. Google
In January, a group of 50 state Attorneys General and the Department of Justice met in what was thought to be a step towards the two groups cooperating in an investigation against Google. Now it seems more likely that the DOJ and the Attorneys General are going to file lawsuits against this Big Tech giant. Shares of the company dropped 3% after the news broke at the beginning of May.
Antitrust is focusing on Google’s ad business as well as allegations of the tech giant squashing competition in the search engine market. Google is no stranger to anti-trust lawsuits in the past; in 2018 the EU Commission fined the Alphabet-owned company $4.34 billion for illegally restricting Android users from using other internet apps.
What is interesting about this case is that a similar thing happened to Microsoft (NASDAQ: MSFT) back in the 90s. The DOJ and several state attorneys general joined forces to sue Microsoft for actively seeking to destroy Netscape Navigator, an internet browsing company, while there were other allegations around its intentions to control the web as a whole. This case had far-reaching consequences allowing third-party browsers to make a name for themselves, such as Chrome did in the 2010s
This similarity could prove to be inauspicious for Google as it heralds another potentially market-changing lawsuit. Despite the share price drop of 3%, prices have since recovered by 4%.
Google also has a large cash reserve amounting to $9.3 billion which it has used in the past for fines. Investors should be wary, however, as this lawsuit might lead to more than just a fine and could instead force Google to restructure. Whilst Google might have the cash resources and the wherewithal to cooperate now, it is expected that lawsuits will be filed come the fall.
Antitrust Vs. Amazon
In March of this year, a lawsuit filed by attorneys in Seattle led the way for antitrust investigations into Amazon. The suit alleges that the e-commerce giant forces sellers who use its service to only sell their products at the price advertised on its website. This policy extends to the pricing of these products on other e-commerce sites that the seller might use.
The problem with such a policy is that Amazon accounts for half of the e-commerce market in the U.S. By creating a pricing floor, up to 2 million third-party sellers find it difficult to earn revenue elsewhere on the web. When investigations by the Federal Trade Commission began last year, Amazon seemingly abandoned this policy. Instead, it was reframed into a ‘fair pricing agreement’ requiring that Amazon have prices equal to or lower than on other websites.
This case could have a potential class size in the tens of millions nationwide, whilst it estimates the number of damages caused by its policies could be anywhere between $55 billion to $172 billion. Investors should be wary then, that even though share prices are up 28% this year alone, the 600 million products that are sold by third-party sellers account for up to 68% of Amazon’s sales. The ongoing coronavirus pandemic has put a pause on the case proceedings for now; both Amazon and the plaintiffs have agreed to wait till things settle down before deciding on a court date.
In other Big Tech vs Antitrust news…
Facebook reportedly pulled out of plans to buy the Houseparty app last year, having been spooked by continued antitrust scrutiny into the tech world. It has since been attempting to integrate its Messenger, Facebook, Whatsapp, and Instagram services into one complex system. This makes it more difficult for antitrust to break it up in the future. This stinks of a guilty conscience and although we are all aware of Facebook’s privacy issues, it begs the question: what else is going on behind closed doors?
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above Read our full disclosure policy here.