Bigger is better, right? Well, not always. For Facebook (FB), Amazon (AMZN) and Google (GOOG), being large and dominant is actually providing for major headache.
The three tech giants are targets of US antitrust regulators, as it is being reported that the FCC and DOJ are looking into how to investigate them. Making matters worse, Democratic presidential nominees continue to campaign on an anti-Big Tech platform, including breaking up the largest and most powerful companies.
However, Baird’s top analyst Colin Sebastian says it is unlikely that Facebook, Amazon or Google will actually be broken apart, as he maintains his Outperform rating on each stock.
As always, we like to give credit where credit is due. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Colin Sebastian has a yearly average return of 24% and a 66% success rate. Sebastian is ranked #32 out of 5,168 analysts.
Overall, Sebastian views the “risks of large-cap tech company breakups as relatively low.” However, he believes there is a “moderate” chance that there is any sort of “anti-trust action short of breakup,” and sees a “relatively high” chance of increased privacy regulation.
A primary point of “refuge” for Facebook and Google is that it is relatively widely accepted that neither company is “unfriendly to consumers.” In fact, Sebastian says “the growth of Facebook and Instagram (and to a much lesser extent Amazon) created more competition for Google in recent years,” which he believes “dilute[s] arguments that the ‘duopoly’ is unfriendly to consumers.” Furthermore, each service is offered for free, which further makes it challenging to argue that it is harmful to the consumer.
Though Sebastian does not expect much harm to be done to either of the three companies, he does believe “the inevitable involvement of the judicial branch will include reviews of prior FTC and DOJ actions,” and does expect investigation. The analyst believes “investigations could create distractions and muddy medium-term strategic direction,” while government actions “could cast a shadow over innovation and risk-taking.”
While Facebook and Google are the most probable targets for investigations, Sebastian believes Amazon “could outperform other FANGs under the specter of government intervention,” though the analyst says, “positive revenue trends for Facebook could spark a rebound after investors digest the current news-flow.”
Investigations aside, Facebook, Amazon and Google stocks are in good shape. According to TipRanks analysis, there is a Strong Buy consensus rating on each company, with average price targets near or over 30%. (See FB’s, AMZN’s and GOOG’s price targets and analyst ratings on TipRanks)