Google and Facebook Are Under Attack: Buy, Sell, or Hold?

Shah Gilani|January 6, 2021

Two of America’s technology giants are under attack. The U.S. Department of Justice, the Federal Trade Commission, and dozens of U.S. states are suing Google and building cases against Facebook, alleging anticompetitive behavior by the firms individually and by working together.

Of course, the mega-cap tech giants are fighting back.

Google, which is being hammered hard over its virtual advertising monopoly, retorted in a blog, “To suggest that the ad tech sector is lacking competition is simply not true, to the contrary, the industry is famously crowded. There are thousands of companies, large and small, working together and in competition with each other to power digital advertising across the web, each with different specialties and technologies.”

Regulators aren’t buying it.

With so much heat coming from above and below, the biggest tech companies in America, in the world, are facing almost impossible-to-defend-against attacks on their unseen and allegedly unseemly business practices, with some possibly landing on the chopping block.

Long before any final hammers come down, investors want to know what to do with their stocks, specifically Google and Facebook.

Here’s what I’m recommending…

What Could Happen to Google

Google’s parent company, Alphabet Inc. (NasdaqGS:GOOG), is in serious trouble. The company’s already been sued by the European Commission (EC) for everything U.S. regulators and states are going after it for; it lost on every front in Europe. Google must abide by new rules imposed by the EC while it appeals.

The EC’s accusations and findings, as well as the resolutions it imposed on Google, are a perfect roadmap U.S. attorney’s general, the DOJ, and FTC can easily follow, as they push Google down the same dead-end European lawyers pushed it towards.

That doesn’t mean Google’s finished, not by a longshot. Google’s the biggest and best search engine on earth (in my opinion and according to most everyone who uses any search engine) because of its size, because so many people use it, because the more it’s used, the better it gets at producing results. That’s not something that regulators want to destroy.

And it’s free.

The balancing act regulators will have to navigate will be tamping down Google’s unrivalled advantage in advertising functionality and pricing, including preferencing its own services in search functions and how advertisers are charged and disadvantaged by Google’s algorithms.

That can be done. The EC already mapped that path. Pending new laws in Europe will eventually enshrine resolutions established in previous victories over Google into law.

U.S. investigations and suits will ultimately require Google to make most of the deep changes its resisted for years, changes to its algorithms, and business practices mandated by European regulators. Changes that will impact Google’s revenues and profits.

But all that’s going to take years. Europe’s new draft laws could take four years to enact. Investigations, suits, and trials in the U.S. could take five to 10 years, including appeals.

In the meantime, I want to keep holding Google, at least until the stock reflects any potential impact laws and lawsuits might have on its profitability.

For me, Google trading back down to $1,600 would be an early warning. The stock could test $1,400, which would make me nervous. If the stock trades below $1,400, based on pending laws and the potential outcome of lawsuits, I’d sell.

In between $1,400 and $1,600, where Google could range, would be a nervous time, but not necessarily a reason to sell.

Not only is Texas, along with nine other states, suing Google alleging it operates an illegal digital-advertising monopoly, states attorney generals say Google enlisted rival Facebook Inc. (NasdaqGS:FB) in an alleged deal to rig ad auctions that was code-named “Jedi Blue,” after Star Wars characters.

The complaint alleges Google induced senior Facebook executives to agree to a scheme that undermines the seemingly competitive process used to place ads and charge advertisers.

The federal suit also highlighted Google’s relationship with Apple Inc. (NasdaqGS:AAPL). It alleges Google uses billions of dollars collected from advertising to pay mobile phone manufacturers, carriers, and browsers such as Apple’s Safari to maintain Google as their preset, default search engine.

But I’m not addressing Apple today. It’s still on my must-own list.

Facebook, on the other hand, is in trouble.

Not Lookin’ Good

Besides being tangled up in Google’s schemes, Facebook’s facing potentially life-threatening attacks by politicians who accuse the social media giant of exerting undue influence over Americans’ thinking and belief systems. Some have even labeled Facebook as an existential threat to democracy.

Those arguments may be hyperbole or resonate with Facebook’s many critics, but they’re not as serious a threat to Facebook’s existence as accusations of its anticompetitive behavior.

The long and short of the Facebook saga is, it does dominate social media, its properties Instagram and WhatsApp were brilliantly bought and integrate seamlessly with Facebook’s primary platform, and it is a force all to itself.

The only way to rein in Facebook, according to its detractors, is to break it up.

I’m fine with that. I’m not so sure that’s in Facebook’s future, but if it is, that’s fine with me.

Much like Amazon.com Inc. (NasdaqGS:AMZN), the sum of the parts that make up Facebook are worth more than the whole company. As easy as it would be to break up Facebook, it wouldn’t be easy to separate the intersections where all Facebook’s properties and apps meet, meaning where and how they generate revenue that feeds the primary Facebook platform.

I like Facebook, not just because it has Instagram, WhatsApp, Oculus, and other great properties, but because it has 2.7 billion users – and no lawsuit or court order is going to undermine that monumental block of revenue contributors.

When I think of breaking up Facebook, or Amazon for that matter, I think about the breakup of Standard Oil and how the sum of the parts was ultimately worth infinitely more than the monolithic Standard Oil.

I wouldn’t sell Facebook if I owned it. In fact, if I owned it, or I was looking to buy into it, I’d add shares if I were lucky to get some down at $250, and I’d buy a lot more if the stock dips to $225.

Sincerely,

Shah

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