The Big Get Bigger: Time for a Big Tech Breakup?
Breakups are never easy. It’s why thousands of songs across all genres of music lament the end of a relationship. The 1960’s song by Neil Sedaka states it plainly: “Breaking up is hard to do.”
But, when it comes to big technology companies that dominate and even, dare I say, monopolize their industries, is a breakup necessary? That’s certainly been the hot topic of discussion on Capitol Hill in the past few weeks.
The biggest names in the tech industry are, of course, Amazon (AMZN), Apple (AAPL), Facebook (FB), and Google (GOOG)—and the CEOs of all four companies were in the hot seat on Wednesday, July 29. All four CEOs testified virtually before Congress in a hearing aimed at uncovering whether the tech behemoths had violated antitrust laws.
A lot of ground was covered during the nearly six-hour congressional hearing. Congress’s biggest concern is that these four technology companies are too big and too powerful. Together, these four companies are worth nearly $5 trillion.[1] So, Congress wants to determine if their dominance is hurting American businesses and consumers.
Interestingly, when you consider recent earnings, the big do keep getting bigger—and more dominant.
Amazon, as in its first-quarter earnings report back in May, reported sales jumped 40% year-over-year to $88.9 billion.[2]
When Apple posted results for its third quarter, revenue increased 11% year-over-year to $59.7 billion.[3] Fourth-quarter revenue is forecast to grow to $64.14 billion.[4]
Facebook continued to add more users during the second quarter, with monthly active users reaching 2.7 billion. With more and more users, it’s not too surprising that Facebook’s revenue increased 11% year-over-year to $18.69 billion, or that earnings per share surged 98% year-over-year to $1.80.[5]
Google, despite a $2.6 billion decline in advertising revenue, still achieved total second-quarter revenue of $31.6 billion. That’s down slightly from $31.7 billion in the second quarter of 2019. Second-quarter earnings also slipped year-over-year but still came in at $6.96 billion, or $10.13 per share.[6]
Clearly, Amazon, Apple, Facebook and Google are dominant players in their corners of the tech industry, and that led to a lot of inquiries if their business practices were monopolistic.
For the past year, Congress has compiled millions of documents and sifted through hundreds of hours of testimony to prepare for the hearing with Amazon’s Jeff Bezos, Apple’s Tim Cook, Facebook’s Mark Zuckerberg, and Google’s Sundar Pichai.
Specifically, Amazon was questioned about its third-party product sales and if it uses data to introduce its own competing products. Google was asked about its search and advertising practices, and whether it primarily highlights its own services and content. Congress brought up Facebook’s acquisitions, focusing on its purchase of Instagram in 2012. And Apple wasn’t overlooked, as Cook had to defend the company’s App Store usage.[7]
In all four instances, Bezos, Cook, Zuckerberg and Pichai disputed the accusations and defended their businesses. Zuckerberg was quoted, “We compete hard. We compete fairly. We try to be the best.”[8]
The congressional hearing mainly served as information gathering for the U.S.’s ongoing investigation into these four tech companies. Still, many are now wondering if this is the beginning of the end of Amazon’s, Apple’s, Facebook’s, and Google’s dominance.
Some are calling for a big tech breakup. Others simply want more transparency in business practices. And others are pushing for new federal competition laws. Overall, it’s anyone’s guess what types of changes—if any—will result from the recent congressional hearing.
In the meantime, if you’re looking for more insights into tech stocks or how a big tech breakup could impact your personal portfolio, give me a call today. I’d be happy to review your current holdings and discuss your financial goals.
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[1] https://www.npr.org/2020/07/30/896952403/4-key-takeaways-from-washingtons-big-tech-hearing-on-monopoly-power
[2] https://ir.aboutamazon.com/news-release/news-release-details/2020/Amazon.com-Announces-Second-Quarter-Results/
[3] https://www.apple.com/newsroom/2020/07/apple-reports-third-quarter-results/
[4] https://finance.yahoo.com/quote/AAPL/analysis?p=AAPL
[5] https://investor.fb.com/investor-news/press-release-details/2020/Facebook-Reports-Second-Quarter-2020-Results/default.aspx
[6] https://www.marketwatch.com/story/alphabet-q2-display-ad-spending-is-still-in-a-rut-2020-07-30
[7] https://www.npr.org/2020/07/30/896952403/4-key-takeaways-from-washingtons-big-tech-hearing-on-monopoly-power
[8] https://www.washingtonpost.com/technology/2020/07/29/apple-google-facebook-amazon-congress-hearing/