By Therese Poletti, MarketWatch
MarketWatch photo illustration/Getty Images, iStockphoto
The U.S. Securities and Exchange Commission has tried hard to force Alphabet Inc. and Amazon.com Inc. to disclose more information about their fast-growing businesses, but the tech giants aren’t playing along.
The SEC is apparently as curious as MarketWatch is about Google’s YouTube revenue, Amazon’s allocation of R&D spending and a few other matters related to the vast amounts of money coming and going from Big Tech’s corporate giants. Along with a back-and-forth with Microsoft Corp. /zigman2/quotes/207732364/composite MSFT +0.89% that mostly involved that company’s early adoption of revenue-recognition rules, the SEC has disclosed correspondence with three of the world’s largest tech companies so far this year.
While the correspondence was only disclosed this year, it has actually been occurring for a while, as these tech companies became some of the most valuable and important in the world. The SEC engaged in lengthy correspondence with both Alphabet Inc. /zigman2/quotes/205453964/composite GOOG +0.40% and Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN -0.70% /zigman2/quotes/210331248/composite AMZN -0.70% in what ultimately turned out to be futile efforts to get more specifics from each company about certain items in their financial statements.
Specifically, the SEC seemed interested in parts of these companies that have grown into massive companies on their own, such as YouTube, Amazon Web Services and the Alexa line of intelligent speakers. Both Alphabet and Amazon avoid disclosing much about the performance or costs of those businesses, lumping them in to large buckets of money instead of fully breaking them out as segments of their much larger businesses.
“The SEC is always interested in segment reporting,” said Tom Selling, a former SEC accountant who consults with public companies on accounting standards and SEC compliance. “In general, they are trying to get companies to comply with the segment rules.”
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It is possible that the SEC correspondence is part of a regular check-in, which tends to happen about every three years, but it certainly seized that opportunity to try to ferret out more info about underreported business segments.
“Segment disclosures continue to be a frequent area of emphasis in SEC staff comment letters,” officials at EY, formerly known as Ernst & Young, wrote in an advisory to clients last year. “In these reviews, the SEC staff often challenges companies’ determination of the chief operating decision maker and companies’ conclusions on identifying and aggregating operating segments. Companies also are frequently challenged about the adequacy of their entity-wide disclosures with respect to products and services.”
The SEC started its correspondence with Alphabet last July , when it asked the company many questions about its segment reporting, revenue recognition and asked for more information about Google’s fast-growing YouTube video streaming business, which it bought in 2006 for $1.65 billion and folded into Google’s overall search and advertising business.
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Alphabet basically told the SEC nothing, despite repeated attempts. The Google parent company claimed that Chief Executive Larry Page does not make decisions about YouTube nor regularly view breakouts of that segment’s performance, a key part of rules for disclosure.
Even though some analysts now estimate that revenue from ads on YouTube will reach about $13 billion this year, Alphabet bundles its financial performance with all of its other advertising businesses. A Google spokeswoman had no comments about its correspondence with the SEC.
“Google is our only reportable segment,” the company said in one response in December . “None of our other operating segments meet the quantitative thresholds to qualify as reportable segments.”
Read more about the SEC and Alphabet
Amazon’s fight with the SEC lasted much longer. The SEC wrote its first letter in mid-2016, after the e-commerce giant filed its 10-K annual report. In its initial four page letter , the SEC seems concerned about fast-growing businesses for which Amazon supplied few or no numbers—presumably the AWS, Kindle and Alexa businesses.