Wall Street is typically not a fan of big government breaking up companies, but at least one equity analyst is all for it.
“I love the idea of breaking up these FAANGs,” Needham & Co. senior analyst Laura Martin tells Yahoo Finance’s “The First Trade.”
Big tech is under the microscope, now that U.S. regulators investigate whether Amazon (AMZN), Apple (AAPL), Facebook (FB), and Google (GOOG) have too much power.
While Silicon Valley tech titans defend their respective business models, Martin believes Google is worth 50% more broken up.
“I think Google would be more well-run, and certainly have more disclosure if you broke it up,” she says.
Wall Street prefers a pure play
Martin envisions breaking up Google into four pure-plays: advertising network, search engine, YouTube and Waymo.
“Wall Street vastly prefers to invest in pure-plays rather than a big conglomerate,” Martin says. “They’re all different businesses, they have different risk profiles, and therefore, different investment bases.”
FTC vs DOJ scrutiny
The Federal Trade Commission is taking the reins in antitrust investigations of Amazon and Facebook, while the Department of Justice will oversee investigations of Alphabet’s Google and Apple.
In a note to clients Martin wrote, “The fact that the FTC now has jurisdiction over FB and AMZN weakens their position as an investment alternative vs. AAPL and GOOGL.”
Unlike the DOJ, which operates largely behind closed doors, Martin says the FTC is a more open process, and fears the companies will be “dragged through the mud” with hearings that play out in the court of public opinion.
“Historically, the FTC has not gone through the breakup process. So I don’t expect them to break up [Facebook and Amazon], but I do expect them to hurt the consumer-facing businesses and the brand value of [these companies],” Martin says.
Investors’ tough decisions
Martin says even if Facebook can continue to grow users and revenue, she predicts the company’s margins will fall and its headline risks will rise steadily through the 2020 presidential election.
Kim Forrest, chief investment officer at Bokeh Capital Partners, says investors will need to make some tough decisions as these government investigations of big tech play out.
“You take a really good look and say who is likely to grow, even in a highly regulated arena,” Forrest says. “You keep those and jettison the rest... I don’t care what they’ve done in the past. Walk away.
Alexis Christoforous is co-anchor of Yahoo Finance’s “The First Trade.” Follow her on Twitter @AlexisTVNews.
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