According to analysts, the meteoric rise of big tech in 2021 could soon fall to earth amid new internet regulations and changes in the digital advertising landscape.
The large technology and social media companies Facebook Inc., Apple Inc. and Google LLC from Alphabet Inc. significantly exceeded analysts’ forecasts in the first quarter and continued to expand their key businesses. Facebook and Google saw double-digit year-over-year growth in their advertising businesses, while Apple generated profits that were borne not only by the iconic iPhone but some of its less noticeable segments as well – – Mac computers and services.
However, the seemingly limitless growth of companies has not gone unnoticed by US lawmakers and regulators, who continue to raise questions about their business practices and seek to contain their market influence. At the same time, there are growing concerns in the industry about the impact of The latest privacy update for Apple’s operating system that requires it Apps to get user permission to collect and share data. Analysts warn of impending regulation and Apple’s iOS14 update is two headwinds big tech players are unlikely to overcome anytime soon.
Facebook executives announced in an April earnings call that Apple’s new privacy change was still in its infancy. However, the company believes the update will add increased headwinds to ad targeting this quarter. As part of the privacy change, Apple users must sign in before apps and advertisers can use Apple device identifiers to target ads and track how effective they are.
Eric Seufert, an independent analyst and marketing strategy consultant who runs the Mobile Advertising Trade blog Mobile Dev Memo, previously predicted that Facebook could see a 7% decline in sales as marketers spend less on ads and more iOS users choose , Facebook refuse to collect their ads data.
“The damage to Facebook’s revenue caused by Apple’s new privacy policy will be substantial,” wrote Seufert, and reckons that the global average Facebook opt-in rate will be between “30% in the best case and 10% in the worst case “will lie-case scenario. “
Facebook reported total revenue of $ 26.17 billion for the period just ended, up 48% from $ 17.74 billion last year. Advertising revenue for the quarter increased 46% year over year to $ 25.44 billion.
At the regulatory level, Facebook is facing two separate antitrust lawsuits US Federal Trade Commission and 48 US attorneys general alleging, among other things, that the company engaged in anti-competitive behavior. The lawsuits called for a range of potential remedial actions – from divestments to Facebook’s commitment to obtaining approval for future mergers and acquisitions.
Meanwhile, Google is facing antitrust proceedings from the US Department of Justice and 11 states alleging the company illegally maintained monopolies in general search and search advertising. Alphabet’s advertising revenue in Google’s main segment rose to $ 44.68 billion in the past quarter, compared to $ 33.76 billion in the same period last year.
Apple has also come under fire from lawmakers and regulators for charging app developers a 30% commission. Critics claim this has resulted in less choice and higher prices for consumers. The company is battling Epic Games Inc. in a lawsuit ain determining if the guidelines from Apple have led to an Apple monopoly over the digital payments landscape, like Epic claims.
The App Store is part of Apple’s broader service business, which also includes Apple Music, video services, and cloud offerings. While Apple does not provide specific sales for the App Store, the company’s net service revenue for the March quarter was $ 16.90 billion, accounting for approximately 19% of Apple’s total net revenue for the period.
Daniel Morgan, a senior portfolio manager at financial services firm Synovus, expects regulators to impose additional restrictions on Big Tech’s core businesses, such as: B. the restriction of the ad tracking capabilities of Facebook and Google, similar to the recent data protection changes from Apple.
“You can see some kind of restriction on where to come in and say you can’t, you have to open up [your businesses] “said Morgan in an interview.” I think this would be one of the easier ones to address initially rather than go for a bigger breakup. “
In a January note, Kevin Rippey, who was an analyst at Evercore ISI at the time, said he viewed Facebook’s battle with Apple as a greater risk to the company than government regulation, noting that Zuckerberg’s support for Congress Playing a more active role in designing new regulations are positive. The CEO asked government officials in January to set clearer rules for privacy and content moderation, saying these issues were “very difficult to balance for a private company.”
Despite regulatory risks and advertising challenges, some analysts remain optimistic about big tech’s future growth potential.
Daniel Ives, an analyst at Wedbush Securities, said in a recent report that he expects major tech players to lead digital transformation in areas such as cloud computing, next-generation 5G wireless technology, and cybersecurity, giving him a $ 2 trillion market opportunity US dollar for the next ten years.
“If we take a step back, our bullish view of technology stocks over the years is based on our multi-year thesis that the story of digital transformation is still in its infancy across the consumer and business ecosystem,” said Ives.
John Petrides, Portfolio Manager at Tocqueville Asset Management, agreed, noting in comments sent via email, “FAANG as a group all had solid results and the group’s fundamentals continue to look good.”
The so-called FAANG shares, to which Facebook, Apple, Amazon.com Inc., Netflix Inc. and Google are often jointly pursued because of their impact on US markets.
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