Privacy issues are dead serious for the FAANG stocks, this investor says

Competition and privacy issues have been central to complaints surrounding the big tech giants for some time now but recent moves in the United States are raising the stakes, says portfolio manager Darren Sissons, who warns that investors should tread carefully around stocks like Facebook and Alphabet as it’s becoming more likely that regulators will be forcing a breakup on these companies.

“I think the biggest single issue for most of big tech is antitrust,” says Sissons, vice president at Campbell Lee & Ross, to BNN Bloomberg on Tuesday. “I think if you look at some of the noise we’re starting to see now out of the US, there are serious concerns around the potential break-up of the big tech giants.”

“It really started with Facebook over Cambridge Analytics but the power of an Amazon or a Google or Facebook in terms of the overall economy is starting to distort competition, so there is a very real possibility that over time these companies will get broken up,” he says.

Earlier this month, both the US Department of Justice and the Federal Trade Commission announced that they would be separately looking into antitrust matters, with the DoJ investigating on Apple and Google while the FTC would be taking on Facebook and Amazon. The news caused share prices for the four tech giants to drop sharply.

Just how the two departments will be approaching the matter is yet unclear but yesterday assistant attorney general for the DoJ Makan Delrahim provided some indication on how US anti-competition and antitrust laws may be applied in the cases of the four companies.

“The Antitrust Division does not take a myopic view of competition,” said Delrahim. “Many recent calls for antitrust reform, or more radical change, are premised on the incorrect notion that antitrust policy is only concerned with keeping prices low. It is well settled, however, that competition has price and non-price dimensions.”

Delrahim further added that “diminished quality is also a type of harm to competition. As an example, privacy can be an important dimension of quality.  By protecting competition, we can have an impact on privacy and data protection.”

Sissons says that there is precedent in the tech sector for US agencies to enforce antitrust breakups.

“This would not be the first time that that has happened. In the late 1980s, the US telecom sector was broken up through antitrust, so there definitely have been precedents, and now that noise is starting to become more pervasive,” says Sissons.

“If you’ve owned Google for a long period of time, you’ve done fabulously well, so take a little bit of money off the table and wait and see what happens. I definitely wouldn’t be adding any money here at this point,” he says.

Disclosure: Cantech’s Nick Waddell owns shares of Amazon.

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