Today, we’re looking at the impact these antitrust investigations had on the stock of the silicon valley giants. We’re also going to show you what the investigations from the Department of Justice, Federal Trade Commission, and the House Judiciary Committee have in store for the companies.
Morgan Stanley predicts that in a worst “bear case” scenario, Apple’s stock could fall to one hundred forty-seven dollars per share from antitrust regulations and tariffs on goods from China. Their “base case” for Apple is two hundred thirty-one dollars per share but they expect tariffs to take up to seventy-one off that, and the antitrust regulation worst-case impact could take another thirteen dollars out per share. The note from Morgan Stanley to investors addressed the recent reports that the Department of Justice might investigate anti-competitive behavior by Apple, which could cost them tens of billions of dollars in equity value. The analyst who wrote the note, Katy Huberty said the likely focus of the investigation is Spotify’s accusation of anti-competitive actions favoring Apple Music over third-party apps. Apple is already facing potential investigation by the EU on this accusation stemming from a complaint from Spotify. EU prosecutors have not yet announced what action they will take, but the scrutiny itself sets a precedent. If regulators go after the App Store, Huberty says the extreme scenario would be the company cuts its revenue from developers in half. Huberty also said that Apple’s take rate starting in 2020 would equate to lost revenue of nine point five billion dollars.
These are hypothetical projections until the DOJ takes action, but Apple CEO Tim Cook is already addressing the potential outcome. In an interview with CBS News on Monday, Cook said, “I think we should be scrutinized. But any kind of measure about ‘is Apple a monopoly or not,’ I don’t think anybody reasonable is going to come to the conclusion that Apple’s a monopoly. Our share is much more modest. We don’t have a dominant position in any market.”
Based on a report from the International Data Corporation’s Worldwide Quarterly Mobile Phone Tracker, Apple’s shipments in the first quarter of 2019 dropped thirty percent from last year, lagging behind Samsung and Huawei. “The iPhone struggled to win over consumers in most major markets as competitors continue to eat away at Apple’s market share. Price cuts in China throughout the quarter along with favorable trade-in deals in many markets were still not enough to encourage consumers to upgrade. Combine this with the fact that most competitors will shortly launch 5G phones and new foldable devices, the iPhone could face a difficult remainder of the year.”
The iPhone is not the focus of the investigation though. App developers have taken issue with the App store, accusing them of unfairly limiting rivals to their services. As we reported recently, the Supreme Court ruled that consumers should be allowed to bring lawsuits against the company over inflating the price of apps by taking thirty percent commission. Apple isn’t the only tech giant whose stocks are in jeopardy pending an antitrust investigation. Alphabet took a major hit, falling to its lowest in five months as the DOJ prepares a probe into Google. Like Apple, the probe will explore ‘anti-competitive conduct’ to see if Google is harming competition in the digital market. The indication of a probe made Alphabet stock plummet to its lowest since January at just over one thousand dollars per share. Google is currently one of the most profitable companies in history and has faced three separate antitrust investigations from the European Union since 2010. A team of Merrill Lynch analysts wrote a note to investors talking about the potential effects of an investigation by the DOJ. According to Bloomberg, Post said, “Potential implications for Google could include new regulations on business practices, or an antitrust probe leading to a breakup. It is very rare to break up a company but not unheard of.” Post thinks the investigation into Google would take at least five years, which would cause significant internal distractions, but would have a positive long-term effect on the company’s valuation and public perception. Analyst Ross Sandler of Barclays thinks the regulatory concerns are bad timing and Google is losing allies in Washington DC after siding with Democratic candidates who weren’t elected. While he thinks the investigation would be long and painful, he doesn’t believe it will result in the company being broken up.
After a report stating the FTC secured the rights to begin an antitrust investigation into Facebook, the NASDAQ composite fell one point six percent, putting it down more than ten percent from its May record low. The statement came after a bipartisan letter urging the FTC to take antitrust action addressing the huge market shares Google and Facebook have in search and advertising, as well as concerns over privacy. Republicans have also pushed for action based on the size and influence the companies have over speech online and allegations of stifling conservative voices– which the companies deny. Despite the growing concern from lawmakers and the public over the market dominance, both Facebook and Google products are extremely popular to consumers.
Makan Delrahim, the Justice Department’s antitrust chief has said there’s nothing wrong with these companies achieving market dominance through innovation. According to the Wall Street Journal, Delrahim said in a speech about digital platforms last year at the University of Chicago, “Antitrust enforcers may need to take a close look to see whether competition is suffering and consumers are losing out on new innovations as a result of misdeeds by a monopoly incumbent.” The antitrust chief answers to US Attorney General William Barr, who shared similar feelings with senators during his confirmation hearings in January, saying: “I don’t think big is necessarily bad, but I think a lot of people wonder how such huge behemoths that now exist in Silicon Valley have taken shape under the nose of the antitrust enforcers. You can win that place in the marketplace without violating the antitrust laws, but I want to find out more about that dynamic.”
The House Judiciary Committee announced its own investigation into the digital market competition, which will include hearings and information requests. The probe will also determine if the current US antitrust laws and enforcement have been able to keep up with changes in technology. According to the Wall Street Journal, Chairman of the Judiciary Committee Jerrold Nadler said, “The open internet has delivered enormous benefits to Americans, but there is growing evidence that a handful of gatekeepers have come to capture control over key arteries of online commerce, content, and communications.”
Last year, internet industries including Google, Amazon, and Facebook put a record seventy-seven point nine million dollars into lobbying in Washington DC. Alphabet spent over twenty-one million, Amazon spent over fourteen million, and Facebook spent over twelve million.
The Silicon Valley giants have also spent years building their support network in Washington DC and other areas around the country and have funded nonprofit antitrust groups across the political spectrum. A Google transparency report showed that the company funded more than thirty nonprofit groups that are in the public antitrust debate. Amazon’s investment list shows they fund many of the same groups. The FTC has been ramping up its scrutiny in recent months, announcing a task force in February that would re-evaluate past government decisions that allowed tech companies to acquire smaller companies that would have been future competitors. One of these deals is Facebook’s acquisitions of WhatsApp and Instagram. Tech advocates are arguing that actions taken against the industry giants could hurt consumers and the economy, as well as stifle growth and innovation. FTC Chairman Joe Simons is eager to figure out how the tech giants have been able to sway large parts of the economy and society.
According to the Wall Street Journal, Simons said in a speech to Georgetown University last year: “It makes sense for the antitrust authorities to look in places where there might be significant market power, to ensure that such firms compete on the merits—and that might include some of the significant high-tech platforms.”
The FTC has spent over a year investigating privacy issues and how Facebook handles user data, but that probe didn’t focus on issues of competition. Because the jurisdictional agreements between the DOJ and FTC didn’t assign a single agency the right to oversee one company for each issue, they will clear each other to work on specified issues.
These investigations are going to take lots of time, and the companies are going to stay on their toes and continue to further their interests. The outcome won’t just affect the companies– consumers and emerging tech companies will reap the consequences or the benefits, depending on how it plays out, which is why it’s so important to keep up on developments. We’ll have those updates and more here so be sure to check back for more videos. We have new videos every Monday through Thursday at 7pm, and soon we’ll be expanding our coverage to get more news to you every day of the week. You can help us out by showing your support and sharing our videos and leaving your thoughts in the comments.
DoJ plans probe for Apple
The DoJ Antitrust Division and the FTC met in recent weeks forming an agreement to give jurisdiction to undertake potential antitrust probes of Apple and Google, owned by Alphabet Inc.
DoJ has jurisdiction for a potential probe of Apple, and the FTC was given jurisdiction to look at Amazon.com Inc and Facebook Inc according to sources.
Companies like Spotify have criticized the iPhone maker’s practices, describing the company as anti-competitive in a complaint to the European Union’s antitrust regulators.
Central to Spotify’s complaint is the 30% fee Apple charges to content-based service providers to use Apple’s in-app purchase system.
The company has defended its practices, saying it only collects a commission if a good or service is sold through an app.
“Our users trust Apple – and that trust is critical to how we operate a fair, competitive store for developer app distribution,” Apple stated previously.
On Monday, the Wall Street Journal reported that the FTC will examine how Facebook’s practices affect digital competition.
The Washington Post reported over the weekend that Amazon will be probed by U.S. regulators, on Friday, the Journal reported that the DoJ is preparing a probe of Google, sending shares of parent company Alphabet down 7% Monday.
The ‘Apple tax’ accounts for a considerable amount of Apple’s services revenue, but draws angers developers who compete with Apple’s self-manufactured apps in their store.
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