On Tuesday the House Judiciary subcommittee on antitrust released its report on Facebook (NASDAQ:FB) and other tech giants. The 450 page report is damning, and concludes that the companies enjoy “monopoly power.” Among the recommendations are moves by Congress that could see the companies broken up. The subcommittee would also like to see it harder for these tech giants to buy smaller companies. So much for Facebook being able to snap up another Instagram. However, the report has had almost zero impact on Facebook stock.
FB slid less than one dollar after the report was released, then posted a 2.19% gain the following day. You definitely can’t accuse investors of running for the exits. After several years of investigations, CEOs being grilled by Congress and a Democratic Presidential candidate who built her campaign around breaking up big tech companies, the stock market seems to be in a state of apathy about regulatory threats to Facebook.
House Antitrust Subcommittee Report Labels Facebook a Monopoly
On Oct. 6, the House Antitrust Subcommittee wrapped up its 16-month investigation of four technology and social media companies, including Facebook. It released a 450-page report titled “Investigation of Competition In Digital Markets.”
It makes for a long read, but the gist of the report is that these companies have monopolistic powers. The report goes on to recommend that Congress pursue the reform of antitrust laws for a digital age. Doing so could see companies, including Facebook, forced to divest themselves of some parts of their businesses.
Taken at face value, this report seems to spell trouble for Facebook stock. However, the market reaction to the news was muted.
Will Facebook Actually Face the Music?
One person who knows all about tech antitrust legal challenges is Steve Ballmer. He was front and center during the infamous 2000 antitrust ruling over the practice of his company bundling the Internet Explorer web browser with Windows. Ballmer has thoughts about Facebook and the other tech companies under investigation that he shared with CNBC: “I’ll bet money that they will not be broken up.”
He clarified that position to point out that the threat may be made, but not make it to the enforcement stage once legal challenges are raised: “That doesn’t mean, as in our case, somebody won’t order them broken up before that gets pulled back.”
Reducing the likelihood of any dramatic measures being taken any time soon is the fact that the report was written by Democratic congressional staff. Republicans are opposing measures like forced breakups.
The most likely possibility out of all this seems to be a fine. Make no mistake, antitrust fines can be sizeable. Facebook was slapped with a record-setting $5 billion fine last July by the Federal Trade Commission as a result of a different investigation. In a year when the company recorded revenue of over $70 billion, the fine hurt — but not too badly. Facebook stock took a bit of a hit on the news, but within a few months, it was back in full-on growth mode. At this point, FB shares are worth 32% more than they were when the company was slapped with that fine.
The lesson here? Short of the unlikely scenario of breaking the company up, the impact on any outcome levied against Facebook is not going to have a meaningful, lasting impact on Facebook stock’s long-term growth.
The Bottom Line on Facebook Stock
Despite the collective shrug by investors after the House report, Facebook isn’t out of the woods. The risk of government action — whether that’s a forced spinning off of Instagram or WhatsApp, roadblocks to future acquisitions or simply increased scrutiny — remains hanging over the company. Any of these actions could have an adverse impact on Facebook’s revenue. That risk is one of the reasons why Facebook stock has a ‘B’ rating in Portfolio Grader.
However, let’s assume that general feeling that Facebook is going to get away with a slap on the wrist is correct. It’s not just Steve Ballmer who feels this way. The Wall Street Journal is tracking 49 investment analysts who offer a rating on Facebook stock. A whopping 38 of them have have FB rated as a buy. That’s two more than three months ago. Clearly there is little concern here that the social media behemoth is in any real danger as a result of the House report.
In addition, those analysts, including the holdouts and the single analyst who recommends selling your FB shares, have a $294.55 average price target. That’s 12% upside. If you’re interested, I would move soon, though. Shares have already crept up 6% from their lowest point during the September tech stock selloff.
On the date of publication, Louis Navellier had a long position in FB. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
