Too Big To Break Up?
September has been the month of soap opera theatrics.
Last Wednesday, we were regaled by the pilot episode of Keeping SECrets … you know, when the SEC and Coinbase Global (Nasdaq: COIN) got into a tizzy? The SEC ghosted Coinbase’s requests to try and comply with crypto regulations … then just sued the crypto exchange anyway?
I’m happy to tell you that this week, the Street is no less finicky. The Feds? Even more so.
More drama is fine with me — have you seen the rest of the market doldrums out there? Sheesh. It’s always when the market’s quiet that everyone’s Antitrust Issues start cropping up…
Today, the Federal Trade Commission (FTC) voted to rewrite the guidelines for vertical acquisitions, i.e., buyouts between companies that don’t directly compete.
Say I had a website that sold insulated coolers (don’t ask, just say it). If I bought the company that makes those coolers, that’s a vertical acquisition … and I could make bank by moving my operations in-house. Enough of those buyouts, and I’d own the whole dang supply chain — insulate that!
So all those times that the Googles and Facebooks of the world bought up some tiny ad firm or software company? Yeah … that’s a vertical acquisition. And it’s by this process that tech became Big Tech, like a monolith from Katamari Damacy just snowballing up other businesses to grow.
A separate report from the FTC noted that between 2010 and 2019, Facebook, Alphabet, Amazon, Apple and Microsoft (the whole Big Tech FAAAM) completed a total of 600 acquisitions.
Think about that for a sec. That’s like five Big Tech buyouts every month for a decade.
That’s 600 buyouts that the SEC, the FTC and all those other alphabet soup agencies really didn’t look at too closely … if at all. Remember, acquisitions under a certain dollar value don’t need to be reported. Right now, that threshold is $92 million, and 65% of these Big Tech deals were under $25 million.
So … regulators just didn’t look into hundreds of Big Tech’s smaller buyouts? For a decade?
Ding ding ding! And we wonder why there’s so much talk of reigning in Big Tech now. The only question is … how?
What if regulators not looking into each deal isn’t the crux of Big Tech’s antitrust issues? What if the real problem is the sum of those deals … the piecemeal nature that makes a tiny lil’ search engine like Google into, well, the Google we know now?
What if I stopped asking you hypothetical questions and got on with my point? I swear, I had a point…
FTC Chair Lina Khan points to these small-scale vertical mergers as the main loophole through which tech companies can buy out “startups, patent portfolios, and entire teams of technologists” to grow instead of actually competing and, dare I say, innovating.
Elsewhere on the FTC, Commissioner Rebecca Slaughter notes:
You see where I’m — erm, where the FTC is running with this?
The Feds know they can’t just declare “We’re killing the Google! Big Tech will be broken up!” (Apparently crying out for the breakup of companies you hate only works with the big banks.)
The last time regulators were this antsy about antitrust action was last summer. Congress and the Senate were divided along party lines, and for all their breakup threats, couldn’t do much to reel in Big Tech. Back on July 29, 2020, we said:
Nowadays? The regulatory environment is different. Big Tech is bigger. The Justice Department and the FTC actually agree on changing the guidelines for how these vertical acquisitions are reviewed. And when you have two huge federal forces in agreement … something’s a-comin’.
So far, regulators have only treated Big Tech’s egregious monopolistic pressure with chump change fines and a slap on the wrist. But if regulators start kicking Big Tech’s ladder out from under it … dismantling the “buy your way out of competing” tactic…
This might be the most meaningful challenge yet to Big Tech’s monopolistic might. Well … depending on how the FTC updates its vertical acquisition guidelines.
It’s all fun and games until the buyout binge runs dry, and every FAAAM stock sank lower today while digesting the implications of a world without vertical acquisitions. The horror!
And that’s not all that’s shaking down on Big Tech street:
My colleague Charles Mizrahi believes we’re on the cusp of a startling new event that will shake the tech sector to its core … and give rise to a whole NEW generation of American tech titans.
If you think that Tesla’s 1,297% rise in 24 months … or Plug Power’s 1,277% rise in nine months were something, wait until you see this.
What do you think, Great Ones? Are we finally getting to the core of Big Tech’s antitrust issues? Or is all this more of the same lip service from regulators?
Let me know what you think about breaking up Big Tech: GreatStuffToday@BanyanHill.com.
Beyond Meat (Nasdaq: BYND) investors got an unwanted case of the meat sweats this morning after a Piper Sandler analyst downgraded the plant-based wonder from “neutral” to “underweight,” citing future growth concerns.
“Beyond is an early leader in plant-based meat, but we believe its current all-channel retail momentum lags consensus expectations, and our foodservice estimates may be high, too,” said analyst Michael Lavery.
Translation? McDonald’s must not be selling enough of those McPlant burgers that were supposed to help the meatless wonder go more mainstream. But here’s where things went from bad to really, really bad for BYND investors…
In addition to its downgrade, analysts now expect Beyond Meat to lose as much as $1.14 per share in 2021 — and an additional $0.42 per share in 2022. That projection left a bitter taste on Wall Street’s tongue, with BYND shares sliding over 5% after the market opened this morning.
Maybe fast-food consumers need more time to digest the idea of plant-based meat substitutes … or maybe they’re just angry over the disappearance of the McRib and want Beyond Meat to pay for the sins of those golden arches.
You’ve gotta know when to hold ‘em, know when to fold ‘em, know when to walk away, and know when to run…
Apparently, plenty of Macau casino investors took Kenny Roger’s advice this week and folded under the continued pressure from China to regulate the world’s largest gambling hub.
For all you nondegenerate Great Ones out there, Macau is the only place in China where gambling is legal … meaning it’s one of the few remaining places to have fun in the Middle Kingdom. It’s also home to several U.S. casino companies, like Wynn Resorts (Nasdaq: WYNN) and Las Vegas Sands (NYSE: LVS), which make over half of their revenue from the “Las Vegas of Asia.”
Shares of WYNN and LVS plummeted this week over fears of China’s new regulations, which have investors uncertain about what China will do when casino licenses come up for renewal next year.
Some of you Great Ones might be looking at this sell-off as a buying opportunity … but with China getting dealer’s choice in the matter, I’m not so sure that I agree.
Uncertainty will continue to hang over these stocks’ heads until China’s new regulations come out … and it’s anyone’s guess how strict those rulings might be. That means volatility will continue to pummel WYNN and LVS shares every time Xi Jinping sneezes in their general direction.
So, unless you’ve got nerves of steel … I’d stay away from Macau’s casino connoisseurs (at least until investors are dealt a better hand). After all, there’ll be time enough for countin’ … when the dealin’s done.
Great Ones, how can you be sure you’ve actually read an issue of Great Stuff if you don’t bump into some COVID-19-related news? That’s right — you can’t!
In an update that’s sure to rile government regulators in D.C., medicine man Moderna (Nasdaq: MRNA) shared insights from a phase 3 study that showed breakthrough COVID-19 cases are less likely to occur in people who’ve been recently vaccinated. Color me shocked (insert heavy sarcasm here).
Moderna went on to say that peoples’ immunity against COVID-19 is likely to wane as time goes by, further bolstering the case for booster shots from Moderna and its vaccine competitors.
Now, before you go picking up your pitchfork, I know there are those of you out there who’re vehemently opposed to getting one of these ‘Rona shots … and I’m not here to argue with you.
What I’d simply like to point out is this: No matter what side of the vaccination aisle you fall on, there’s no denying that booster shots (if deemed a necessary precaution against serious illness) will act like an adrenaline shot in the heart for vaccine makers like Moderna.
So, if you missed out on the great vaccination arms race of 2020 and still want to try making some money off of this trend … now might be a good time to look at MRNA stock. You know, just in case.
There. That wasn’t so bad, was it?
Wall Street’s seeing red today and no amount of optimism was going to save Cisco (Nasdaq: CSCO) from the deluge.
The networking tech company predicts that subscription sales will make up half of overall revenue by fiscal 2025. I’m already setting my calendars, trust me. It sounds like amazing growth until you realize subscription rev already makes up 44% of Cisco’s sales.
Virtually every other software as a service company runs on a subscription model now, and I’m surprised Cisco hasn’t already made inroads with that recurring revenue stream. Me? I wish I shared Cisco’s optimism. The Cisco kid was a friend of mine, but its software is my archnemesis.
Sure, the company’s networking hardware is reliable and secure … but Cisco charging for software subscriptions is like making installment payments to get your teeth pulled. Just ask any network technician how they feel about working with Cisco software — or how much it costs to get certified to work on Cisco routers you already paid for — and prepare to duck.
Big blue-chip companies won’t balk at paying Cisco’s exorbitant costs, but startups and other small businesses will. Cisco charges a premium for stuff like this, and most of those won’t pay it. Smaller companies will hack and jerry-rig their networks like they always have … that’s just how IT works.
In fact, for all its bounding optimism, CSCO barely moved the needle today and closed half a percent lower. Guess we’ll have to wait for fiscal 2025 for that rally…
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