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June 24, 2019, 7:52 a.m. EDT

The antitrust suspects: Facebook and Apple appear to be most at risk

No easy solution for Google, and Amazon appears pretty safe, antitrust experts tell MarketWatch in assessing Big Tech inquiries

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By Jon Swartz

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UBS analyst Eric J. Sheridan, in a June 17 note, believes Facebook is the most exposed company to fines, potential revenue headwinds, impact on valuation and potential for breakup. He maintains a buy rating on Facebook shares and price target of $177.47, 5% below its current price.

Apple

A U.S. Supreme decision in May that allowed consumers to move forward with a long-running lawsuit that claims Apple used its market dominance to inflate prices via a 30% commission at its App Store. The company’s tactics with the App Store also makes it susceptible to regulatory action, antitrust experts contend.

“There is a pretty good claim against Apple for its exclusive dealing with its App Store,” says Hovenkamp. “This could lead to an injunctive remedy.”

Opinion: Apple’s loss at the Supreme Court is ‘a big victory for consumers’ fighting Big Tech’s app and platform monopolies

While exclusivity is not inherently anticompetitive, Delrahim noted in last week’s speech, there are cases where a company may use exclusivity “to prevent entry or diminish the ability of rivals to achieve necessary scale, thereby substantially foreclosing competition.”

European regulators are already looking into the fees the iPhone maker charges companies to sell through its App Store after Spotify Technology /zigman2/quotes/207488629/composite SPOT -4.26% accused Apple of “tilting the playing field to disadvantage competitors,” the Financial Times reported in May.

Instinet analyst Christopher Eberle said services, the fast-growing Apple division that includes the App Store, faces risk beyond its legally contested 30% fee. Regulators are likely to look at the limits Apple places on competitors to advertise and promote lower subscription pricing available away from the App Store, he said, which could impact revenue at the division, which grew 24% to $37.2 billion in 2018.

Alphabet

The Silicon Valley behemoth has extended its influence far beyond search and social media and into artificial intelligence, robotics, and renewable energy through 270 acquisitions, according to Wu.

Only one deal, its 2010 acquisition of travel search firm ITA, was challenged by the federal government, though it was conditionally approved. A subsequent FTC probe led to no action in 2013, yet a more narrow Justice Department case could pose problems, predicts Needham analyst Martin.

Google’s practice of “forcing handset markets to pre-install Google apps on the Android operating system” has clear parallels to the exclusivity issues that were at the center of the Microsoft antitrust case, a case that Delrahim often cites, Evercore ISI analyst Lee Horowitz said in a June 15 note.

The European Commission has already banned these practices, setting a clear precedent for the Justice Department to follow. (Since 2017, the EC has fined Google more than $9 billion for anticompetitive practices.)

Additionally, the lack of app store price competition on Google Play Store could stifle broader digital innovation because of restrictive monetization practices, another vector by which Delrahim believes uncompetitive markets could impose consumer harm, according to Horowitz.

Yet there is no easy solution for Google in the U.S. A breakup could easily lead to an even more powerful entity.

Read: If the government breaks up Google, would it be worth more?

Needham analyst Martin believes Google would benefit the most from a breakup, with an upside to shareholders of about 148% — or $1,579 per share. Google’s Search business alone is worth about $600 per share, she said, and YouTube is worth about $200 per share. She maintained a buy recommendation and price target of $1,350 in a June 10 note .

“There’s a chance” YouTube is spun off, Hovenkamp told MarketWatch, “but it requires a showing that a market would be more competitive.”

Amazon

The most curious investigation could revolve around Amazon, which could face a broad FTC probe as well as heightened pressure from Europe.

“In retail, many of its systemic practices are recognizable as traditional monopoly power,” Harvard professor Zuboff argues. “It elbowed out smaller competitors in book selling, health and beauty products – you name it.”

But U.S. regulators are unlikely to touch Amazon because it doesn’t dominate any particular market, UBS’ Sheridan said in his June 17 note. “In the case of any company breakup, we see unlocked value for GOOG and AMZN as the various pieces within the companies would likely warrant a higher valuation,” he wrote. “Given Amazon’s lower market share (as a % of retail sales), we think AMZN is less impacted in this scenario.”

Cowen analyst John Blackledge estimates Amazon Web Services would be worth $500 billion as a separate company, making it one of the world’s 10 most valuable companies.

For more news: Big Tech was built by the same type of antitrust actions that could now tear it down

However, under the European interpretation of regulatory issues that protect small companies, Amazon could face turmoil, says Thibault Schrepel, assistant professor in the department of public economic law at Utrecht University in Amsterdam.

Margrethe Vestager, head of competition policy in Europe, in April said a full EU probe into Amazon’s use of data on its third-party merchants could come later this year. She and others are concerned Amazon could be using sensitive information about its competitors’ products to its own advantage.

There is a complication, however. Her term ends in October.

/zigman2/quotes/207488629/composite
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Jon Swartz is a senior reporter for MarketWatch in San Francisco, covering many of the biggest players in tech, including Netflix, Facebook and Google. Jon has covered technology for more than 20 years, and previously worked for Barron's and USA Today. Follow him on Twitter @jswartz.

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