Google Protests, Antitrust Fears, and the Fall of FAANG

Last week, Google parent company Alphabet Inc. (NASDAQ: GOOG) held its annual shareholder meeting in Sunnyvale, California.

Gathered outside the confines of the tech giant’s walls, a group of employees and activists held up protest signs and aired a variety of grievances toward the company.

All told, Alphabet’s board of directors would vote down 14 different proposals that day, more than any U.S. public company has in a decade. Regardless of outcome, the number of proposals highlights the growing breadth of issues facing Google today, as its massive size and scope now make criticism nearly impossible to avoid.

Topics addressed in these proposals included Google’s plans to operate a search engine in China, the existence of extremist content on its platforms, and sexual harassment in the workplace, to name just a few.

One dramatic proposal, however, stood out above all others, and that was a call for a voluntary breakup of Alphabet. The proposal comes in the wake of growing antitrust pressure from would-be regulators, the most prominent calls coming from Democratic presidential candidate Elizabeth Warren.

Warren, who currently ranks third in Democratic primary polls, openly called for a breakup of Google (along with Facebook and Amazon) in a Medium post back in March. The Senator lamented at the time that “more than 70% of all Internet traffic goes through sites owned or operated by Google or Facebook.”

Jointly, Warren promised that, if elected, her administration would:

1. Pass legislation designating large tech companies as “Platform Utilities,” which would not be allowed to share data with third parties
2. Appoint regulators “committed to reversing illegal and anti-competitive tech mergers”

As it pertains to Alphabet specifically, Warren wants to split up Google’s ad exchange and its Search engine into two separate entities.

This, of course, would throw a major wrench into Google’s business model, which is why some investors are beginning to call for a voluntary breakup before the government steps in.

From a risk-reduction perspective, this makes at least some degree of sense. Alphabet earns the bulk of its money from advertisements hosted on Google Search. If Warren were to win the presidency and implement such a breakup, Google would effectively lose its ability to monetize.

Warren’s plan to break up Google, though, seems a bit unlikely. She first must win the Democratic primary, then the presidency, and finally pass the proposed legislation. Considering the massive and growing lobbying power of big tech, we can consider it a long shot for now.

That said, general calls to minimize the power of today’s tech giants are not specific to one political party. President Trump, for one, recently called Google, Amazon, and Facebook “a very antitrust situation” earlier this year. At the same time, the conservative base has grown increasingly critical of liberal bias in the management of these platforms.

Whether or not these companies actually qualify as monopolies, of course, is something that’s up for debate. I’m of the general libertarian opinion that, given another decade or two, the market will work itself out.

That’s because I’m old enough to remember headlines like:

“How Yahoo! Won The Search Wars” — Fortune

“Will MySpace ever lose its monopoly?” — The Guardian

“Nokia. One Billion Customers — Can Anyone Catch The Cell Phone King” — Forbes

It’s also because I’ve spent enough time analyzing recent technological trends to know that no one will reign on the hilltop forever, regardless of government intervention. Innovation simply moves too fast these days for the market not to be efficiently disruptive.

Monopoly or not, though, the fact remains that enough people are angry enough with these companies that their power and influence has become a prominent part of the conversation. Users are worried about their privacy and, perhaps even more so, the manipulation of information flow across the web.

For this reason alone, fears of antitrust legislation from either side of the aisle are going to remain in the headlines, at least through the 2020 election. This should be worrisome to investors because it threatens to put a ceiling on how big tech is valued by Wall Street for the foreseeable future.

In short, FAANG should be considered a high-risk, low-reward basket of stocks until talk of antitrust blows over. Investors will want to look to smaller stocks if they want a piece of continued tech industry growth.

Until next time,

Jason Stutman

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