On Monday, activists unveiled a plan for breaking up Facebook, Inc. (NASDAQ:FB). Investors shrugged off the news: Facebook stock rose 1% in trading Monday. Indeed, FB stock now has bounced over 20% from late March lows.
The market’s reaction seems about right. The “Freedom from Facebook” campaign has garnered some media attention. The group plans to buy ads online making its case — including on Facebook and its Instagram property. But the legal case for antitrust action against Facebook is thin at best. And the likelihood of political action, even amid scandals and Congressional hearings, seems close to zero.
There is a case that the bad news surrounding Facebook could have a long-term impact, even though I argued earlier this month that FB stock looks like a buy. And it’s possible that the activist campaign could revive some of the negative sentiment seen toward Facebook by its users.
But investors need to judge the cases for and against Facebook stock on their own merits — and not overreact. I’ve already made that mistake myself. This time around, there’s simply not enough to react to.
Breaking Up Facebook
The “Freedom from Facebook” initiative is being led by a number of groups, including MoveOn, Citizens Against Monopoly and Demand Progress. And according to Gizmodo, their petition (circulating on Facebook, natch) has three main demands:
- The division of Facebook, Inc. into four companies: Facebook, WhatsApp, Instagram and Messenger.
- “Interoperability” between networks. This appears to suggest that Facebook.com would have to integrate content from rivals like Twitter Inc (NYSE:TWTR) and Snap Inc (NYSE:SNAP) into its feeds.
- Creating stronger privacy rules.
It’s an interesting group of requests — and it has some logic. The complaint about Facebook, particularly after the Cambridge Analytica scandal, is that the company simply has too much data. Splitting up the various platforms would limit that collection — and limit the ability of hackers to access that data in (presumably) one convenient place.
Meanwhile, interoperability would undercut the company’s near-monopoly in its social media niche — always a key goal of antitrust regulation.
For critics of Facebook, the plan might seem like a panacea. But, in practice, the plan is dead on arrival.
The Antitrust Risk to Facebook Stock
The argument for antitrust regulation of Facebook — as well as other tech giants like Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOG)(NASDAQ:GOOGL) — isn’t new. Speculation has swirled for some time now.
But there’s been no coherent argument as to why Facebook would be subject to antitrust law, particularly in the U.S. As an antitrust expert put it last month, the application of antitrust law is nothing but “political fantasy.”
The issue is that U.S. law is based on the impact to the prices paid by consumers — not the effect on rival businesses. And given that Facebook is free, it’s pretty much impossible to argue that the company is using its market dominance to raise prices — the very outcome U.S. antitrust law is designed to prevent.
Any antitrust regulation of Facebook, then, would likely require a massive change in U.S. antitrust law and doctrine. At the very least, that’s not happening under a Republican administration (or likely a Democratic one, either). The only other alternative is an enormously stretched interpretation of existing law — which would be tied up in courts for years.
An organized, multi-year campaign to make significant changes to antitrust law perhaps could pose a modest risk. This effort isn’t that.
Facebook Stock Looks Back to Normal
At the end of the day, the likelihood of real political pressure on Facebook — particularly in the U.S. — seems remote. (The company has slightly greater, but manageable, concerns in Europe, between the General Data Protection Regulation and a possible antitrust case in Germany.) As I argued back in April, the future of Facebook is going to come down to its users.
And despite the flurry of negative press post-Cambridge Analytica, there’s no evidence user behavior really has changed. It’s possible the renewed media attention could sever a few more users from the platform — though that seems unlikely.
The efforts announced Monday will get a few more days’ worth of coverage. But against a $540 billion company, in a paralyzed political system, a few hundred thousand dollars’ worth of ads are basically shouting into the wind.
As of this writing, Vince Martin has no positions in any securities mentioned.