Tuesday, March 20, 2018

Facebook and Google: The Data Monopolists Face Regulatory Backlash

The heart of the matter. This piece is a couple weeks old so pre-Cambridge Analytica.
From Grizzle, March 4:

Facebook and Google: The Data Monopolists Face Regulatory Backlash
Regulatory Risk Looms Large Over Wall Street’s One-way FANG Trade
Before the renewed stock market correction that commenced on Wall Street on Tuesday, FANG stocks were back trading at a record high on Monday (see following chart). FANG of course stands for Facebook, Amazon, Netflix and Google. At this record high these stocks had a combined market capitalization of US$2.2 trillion or 9% of the S&P 500 (see following chart).


Note: FANG = Facebook, Amazon, Netflix and Google (Alphabet). Source: CLSA, Bloomberg


Source: Bloomberg

What are the risks of continuing to own these stocks after the huge gains of recent years? The FANG stocks, for example, have risen by 63% since the beginning of 2017, compared with a 20% gain in the S&P 500. One obvious risk is an accelerating monetary tightening scare on rising inflation concerns in America, given that highly rated growth stocks are most vulnerable to higher interest rates. But to this writer a probably greater fundamental risk is regulatory, most particularly in the cases of Facebook and Google.

This risk is being driven by the increasingly evident backlash against social media as people finally wake up to what should have been obvious years ago. That is the sinister aspects of search engine and social media monopolies. But if such a backlash is building, with a recent cover of The Economist magazine titled ‘The new titans: And how to tame them’, the issue is whether this backlash turns into regulatory action creating meaningful downside risk for the relevant companies’ share prices. This is certainly a risk.

The best critique of social media seen by this writer is a book published last year titled, Move Fast and Break Things, by Jonathan Taplin. This book, written by a former 1960s music producer turned academic, highlights the monopolistic aspects of Google and Facebook, as well as the way they are engaged in a process that is destroying critical cultural infrastructure such as news and art, as well as fanning partisan politics by encouraging extremes only to communicate with each other in the by now well understood “echo chamber effect”.....MUCH MORE

We had originally linked to ZeroHedge's copy of the piece on March 7 but the article turned out to be so timely here's credit where credit is due.