Neil Dwane: De-FANGed: 5 Ways the Disrupters Could Be Disrupted

Neil Dwane: De-FANGed: 5 Ways the Disrupters Could Be Disrupted




by Neil Dwane, Chief Global Strategist, Allianz Global Investors

Summary

Investors have profited handsomely from FANG stocks and their Big Tech brethren, but Western regulators are responding to growing concerns about their behaviour. These masters of high-tech disruption may soon find themselves competing on a more regulated – and more level – playing field.

Key takeaways

  • The EU recently fined Google and Amazon and is set to launch the GDPR. What’s next in the EU’s battle against Big Tech?
  • The EU’s “turnover tax” is a new way to bite back at the FANGs – and another sign of growing headwinds for high-tech giants
  • As Facebook and Google face hard questions about Russia’s role in US elections, they’re also fighting calls to police their networks
  • FANGs still have huge potential and users enamoured of their services, and more oversight could make consumers even more comfortable
  • As high-tech giants compete on a global stage, China’s BATs may be less politically vulnerable in Asia than the FANGs are in the West

Four mega-cap tech companies are so powerful and high-performing, Wall Street has dubbed them the FANG stocks – Facebook, Amazon, Netflix and Google. These four firms alone have turbo-charged US stockmarket returns in recent years, reaching more than USD 1.7 trillion in total market capitalization.

The Market Has Rewarded Big Disrupters
Market-cap path of FANG and BAT companies versus a broad global equity universe, 2014-2017

Chart: The Market Has Rewarded Big Disrupters

Source: Bloomberg (FANG, BAT) and Thomson Financial Datastream (universe). Data from 1 October 2014 to 30 September 2017. FANG = Facebook, Amazon, Netflix, Google (now Alphabet). BAT = Baidu, Alibaba, Tencent; market-cap size based on ADRs.

Just as the growth, earnings and cash generation of these Big Tech names have soared, so has their impact on economies and consumers, who are wowed by the services, price transparency and convenience they provide. As a result, there has until recently been little public pressure to challenge the dominance of these firms, which some critics liken to near-monopoly status. Yet these powerful companies are attracting greater scrutiny from regulators:

  • In June 2017, European Union antitrust regulators fined Google EUR 2.4 billion for unfairly manipulating search results to benefit its own shopping platform.
  • In October 2017, the European Commission levied a EUR 250 million fine against Amazon for receiving illegal state aid from Luxembourg.
  • As the US government probes Russia’s alleged influence on US elections, it is asking hard questions about Facebook and Google’s roles in selling advertising and allowing “fake news” to proliferate.
  • In May 2018, the European Union will implement a robust set of requirements – the General Data Protection Regulation (GDPR) – aimed at guarding personal information and reshaping how organizations approach data privacy. This will affect not only the FANG stocks, but any company with a digital presence in the EU.

"The EC recently ordered Amazon to pay EUR 250 million in back taxes to Luxembourg"

5 ways the disrupters could be disrupted

These regulatory pressures indicate that governments may be increasingly focused on reducing the market dominance of the FANGs and similar firms. The question now seems to be, will these masters of high-tech disruption soon find themselves disrupted? Here are five ways Big Tech may be feeling the heat.

1. Digital advertising comes under pressure

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