In Focus: Facebook and The Law
Updated: Jun 28, 2020
We don't know what we don't know, and your lack of imagination prevents you from thinking of the unknown. What happened to your imagination? Who killed it and why? When did you stop thinking about what could be, and when did you become the person who believes it is what it is?
Maybe it's not your imagination, maybe it's your feeling towards competition. You don't want to compete anymore. You want to start the season and be handed the championship trophy every year. I can't blame you, that does sound nice.
The you, who I'm talking to is you! The person who scoffs at anything having to do with antitrust regulations in regards to the world's biggest tech companies. While you've stated that companies shouldn't be penalized for being great at what they do, you've forgotten about imagination and competition.
This weeks news that the FTC is weighing an injunction on Facebook (FB) caused a lot of stir in the markets. The stock lost about $23 billion in market cap after the news broke, which hurt Facebook investors who have watched the stock struggle to break over and hold the $200 per share price level. Finally trading over $200 per share, and the FTC news hits sending the stock price sliding.
People want to be able to choose which service they use to communicate with people. However, today if you want to message people on Facebook you have to use Messenger, on Instagram you have to use Direct, and on WhatsApp you have to use WhatsApp. We want to give people a choice so they can reach their friends across these networks from whichever app they prefer.
We plan to start by making it possible for you to send messages to your contacts using any of our services, and then to extend that interoperability to SMS too. Of course, this would be opt-in and you will be able to keep your accounts separate if you'd like. - Mark Zuckerberg
As Facebook pushes forward with further integration of their family of apps, it will be difficult to separate the company if they are in violation of antitrust laws, which is likely why the news of an injunction occurred when it did.
I've openly championed Google (GOOGL) and have named them winners of the internet to date. Facebook to me is like television, it will be here for a long time, it will have more boom and bust moments, but it isn't going anywhere. I do not have a personal vendetta against Facebook, or any other tech company for that matter, but I do imagine that there is better, and have come to the realization that competition is just a part of business and life.
I've lived, worked, and played in a world before Google and with Google, and I'm going to tell you, and it's no secret that I like the world with Google better. Whether or not Google would still exist today if Microsoft weren't being investigated for antitrust violations is a hot debate. I believe that Google would not be here today if Microsoft wasn't distracted by legal issues, and its influence put in check by the government. As great as Google has been since its inception, there is better to come, but we will only experience the better, if entrepreneurs and tinkerers have a fair path to get their ideas into the world.
Governments around the world have given citizens a number of reasons to question their motives, especially in the United States, but in the case of antitrust regulations, the government isn't the bad guy, they're the referee. They're there to make sure everyone has a fair shot and path to the basket. Facebook and the others are allowed to play defense, but they can't outright trip someone who is attempting to take a shot.
From an investors perspective antitrust may not be as bad as it sounds. I've held Google since around the $950 level, I've seen it range for the past two years between $950 to $1290, it's recently broken out of the range, but for the most part it's been a pretty boring investment ride, especially for a company that does so much and has so much to offer. Maybe there is more value in the parts, than there is in the whole.
The same could be said about Facebook. After the tough earnings miss during the summer of 2018 the stock has been struggling to get back to those levels above $200 per share. In spite of security breaches, bad press, and a #deleteFacebook campaign the platform still continues to grow monthly active users, the platform still draws eyes. Since summer of 2018 when the company missed revenue estimates by $118 million, it has reported year-over-year revenue growth of 32%, 30%, 26%, and 27% in the following quarters. The cloud of antitrust issues hanging over the company could be a reason why the stock has been stagnant. Within Facebook it's a young versus old thing, and I think the young is being stifled by the old.
The Facebook platform had its day. I remember when the company took the shackles off and allowed people who weren't attending college to sign up to the platform. It was big, it shifted culture, but that was over a decade ago. Now it's where you're mom and aunt hang out, and there's nothing wrong with that. But Instagram, a Facebook company, still has a factor of coolness. IG is mentioned in everything and associated with everything. IG comedians, IG influencers, IG models, IG fill in the profession here, and we don't get that with Facebook. Maybe IG would be better for investors on its own, some have estimated that Instagram is worth over $100 billion on it's own, which is roughly around where Starbucks is currently valued today.
You don't have to be Scott Galloway or Elizabeth Warren, nor do you have to be a socialist to say, let's check to see if the playing field is level for all. I would argue that you should want to, because it could be you, your son or daughter attempting to compete with these tech giants one day. I would also encourage you to think of what could be. Think about your life 15 years ago and think about your life today, think about all the innovation that you've benefited from. Wanting government to establish a fair playing field does not make you a socialist, it doesn't it make you anti big business, it just makes you someone who believes in fairness.
Also remember that no one is above competition, we're all competing. I'm competing for you attention and investment related dollars, others are competing for raises and promotions, and some are competing with themselves. Competition is a part of life, you never graduate out of competition. A company that has established themselves as an industry leader should still have to compete fairly.
This is where I leave you. Imagination, competition, and fairness.
What is The Seville Report
The Seville Report is our attempt to bring world class investment research to people who feel world class investment research isn't available to them. We also want to demystify the stock market for people who wouldn't normally think of putting their money in the stock market. Our research comes quarterly via our newsletter, The Seville Report. We use the website and this blog to share thoughts and ideas about the markets and different companies.