The battle over “Big Tech” is brewing and likely to have a big impact on how tech stocks trade. The most recent battleground was Australia.
That country pushed for, and passed, a new law requiring tech giants to pay for news that is disseminated on their platforms. Independent arbitrators can set a “fair” price if negotiations fail.
On its own, the new law doesn’t make or break the investment case for big tech stocks. Australia has well less than 1% of the world’s population. Media payments in the market likely will be immaterial, or close, relative to the tens of billions of dollars in annual Big Tech profits.
But Australia is far from alone in pushing back against the concentration of power at major internet companies. One media outlet called the country “ground zero” in a global fight. The European Union is looking to follow Australia’s lead. Calls for greater antitrust regulation are heard around the world, including in the U.S. Canadian Heritage Minister Steven Guilbeault said his country would adopt the Australian approach as it drafts its own legislation in coming months.
In terms of the numbers, the battle in Australia perhaps doesn’t matter all that much. In terms of the long game, it may prove to matter a great deal, particularly to these seven tech stocks:
- Facebook (NASDAQ:FB)
- New York Times Company (NYSE:NYT)
- Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL)
- Microsoft (NASDAQ:MSFT)
- Twitter (NYSE:TWTR)
- Amazon.com (NASDAQ:AMZN)
- Apple (NASDAQ:AAPL)
7 Tech Stocks Watching Australia: Facebook (FB)
It was Facebook that garnered the biggest headlines in Australia. Last month, the company banned the sharing of news on its platform there. The move ostensibly was a way to garner a compromise on the so-called “News Media Bargaining Code” — and to some degree, it worked.
Since the Feb. 18 move led by Prime Minister Scott Morrison, FB stock is down 6.67%.
Facebook earned concessions including a lengthened mediation period and the right to essentially get around the code if it can show a “significant contribution” to journalism in the country.
The concern is at what broader cost those concessions were won. Facebook certainly took some sort of reputational hit, particularly given that it also pulled government agency pages offline. The flexing of muscle showed the country, and to some extent the world, how much muscle Facebook truly has — and at the same time added to existing fears about the concentration of power in it and other Big Tech companies.
Again, in terms of Facebook revenue and earnings, the Australian kerfuffle is a drop in the ocean. But it’s a story that may color how the company is seen by other regulators in other countries. And that raises a whole host of potential consequences, including a possible breakup of the company.
The New York Times (NYT)
It might seem incongruous to have the “Gray Lady” on this list. But The New York Times has become a digital company.
In 2020, digital advertising accounted for 58% of total advertising revenue. Digital-only subscription revenue eclipsed its print counterpart for the first time. The Times’ successful pivot from print to digital — an effort that has failed for most newspapers — is a key reason why NYT stock has more than quadrupled over the past five years.
It would seem like Australia’s move is good news for NYT stock. As Dana Blankenhorn asked on this site last year, if Facebook has to pay for news in Australia, how long before it’s doing the same in the U.S. or the U.K.? Facebook’s aggressive moves in Australia imply that Facebook itself has asked the same question.
And indeed NYT stock has rallied amid the news, gaining about 12% over the last two weeks of February. It’s not certain that the rally is being caused by the Australian dispute, to be sure. But there’s also evidence in the stock’s valuation that the market expects more widespread changes.
NYT stock trades at 44x next year’s consensus earnings per share estimate. That’s a large multiple for a relatively low-growth industry. But it’s a multiple that makes sense if the market expects higher prices for roughly the same content costs. It may be the market already has priced in deals with Big Tech — and sees potentially bigger deals now that the situation in Australia has mostly played out.
Alphabet (GOOGL) (GOOG)
Alphabet has taken a very different tack than Facebook. It’s aimed to be far more conciliatory. After threatening to exit the country, it made a deal with News Corporation (NASDAQ:NWS, NASDAQ:NWSA) in a bid to get ahead of the legislation.
It’s not hard to see why Alphabet caved. The Australian model is a real threat to the broader Alphabet business. The Google search segment remains a cash cow. Progress elsewhere remains somewhat mixed; Alphabet has stumbled in areas like fiber and autonomous vehicles.
With regulators worldwide circling Alphabet, the company simply couldn’t afford to take the same tack as Mark Zuckerberg. Facebook, given the explosive growth in Instagram and WhatsApp, is less reliant on its namesake platform than Alphabet is on search.
The worry for GOOGL stock, like other tech stocks with stake in the Australian fight, is the same outcome in larger markets might prove to be a far bigger concern.
Ironically, Microsoft has positioned itself almost as the “white knight” in the Australia debate. That’s ironic because it was Microsoft that was the first “Big Tech” company to draw the ire of regulators. Its antitrust suit in the U.S. lasted some two decades.
But Microsoft can afford to play good cop, so to speak, as it’s now less exposed to the broader risks. Office 365 and the Azure cloud platform are what drive MSFT stock. Neither faces any significant impact, at least at the moment, from proposed fights against Big Tech.
Yet Microsoft still is looking to take share in search with its Bing engine. Better publicity can’t hurt. From the jump, Microsoft said it supported the Australian law, and it criticized Google for threatening to leave the market.
To those familiar with the long-running antitrust battles of the 1990s and 2000s, it might be strange to see Microsoft on the side of regulators. Yet that’s where the company seems to be positioned here in the 2020s. It’s not hard to see why: where Google and Facebook see risk, Microsoft apparently sees opportunity.
For other stocks, the situation in Australia has little direct impact. But it does perhaps augur what might come elsewhere.
Twitter, of course, has had significant headaches in the U.S. Its ban of President Donald Trump drew criticism not just from U.S. Republicans, but politicians worldwide. Some progressives, meanwhile, think the platform hasn’t gone far enough in removing hate speech.
Meanwhile, outside the U.S., where free speech protections often are less broad, the company is likely to get drawn into more debates. Proposed rules in India are just one example. To calm both regulators and users, Twitter has to walk a fine and potentially impossible line.
Australian news thus isn’t a problem for TWTR stock. But the company no doubt has closely watched how its Big Tech peers have handled that situation — as it prepares for its next time in the hot seat.
Amazon sat this fight out, but the company had its own regulatory battle in Australia back in 2018. Amazon for a time blocked Australian shoppers from its main website following tax law changes.
Like Alphabet, Amazon backed down. And if an AMZN stock investor wants to see some caution toward tech stocks, perhaps there’s a pattern becoming evident.
At the end of the day, no matter how big a Big Tech company is, it still must serve consumers and satisfy regulators. It remains a fine line to walk, particularly given that Amazon is another tech giant facing antitrust scrutiny.
In a way, the fight in Australia highlights what makes Apple stand out among even the largest tech stocks.
After all, Apple would seem likely to have its own regulatory risk. The same push into services that has sent AAPL stock soaring in recent years has the possibility of sparking antitrust concerns. Apple’s closed ecosystem is a boon to its profit margins, but it’s also raised allegations of monopolistic practices.
Yet Apple stays out of the battles that trip up so many of its fellow tech giants. Apple had basically no role in the Australia fight, because it already pays publishers for its Apple News+ service. Similarly, Apple rarely seems to make the list of ‘Big Tech’ offenders — in the U.S. or anywhere else — despite being the world’s most valuable company.
Apple was able to sit out this battle. It apparently is able to sit out most of them. In its own way, that’s a big reason why Apple is worth almost $2 trillion — and why so many bulls still see more upside ahead.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets.