Watch Out! Facebook Co-founder Attacks

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So must be thinking Facebook supremo Mark Zuckerberg. His old college mate — and co-founder of the business — is calling for the break-up of the company.

Meet Chris Hughes. He’s now a billionaire thanks to Facebook, even though he left the company in 2007 and cashed out his equity in 2012. I guess he and Mark Zuckerberg aren’t as close as they once were.

Señor Hughes just wrote an opinion piece for The New York Times. He argues, in part, that Facebook should at least be forced to divest its two key subsidiary platforms, WhatsApp and Instagram.

He didn’t stop there. Hughes wants some form of federal injunction against Facebook acquiring smaller firms that could provide competition in the social network space.

Hughes also has his eye on the message this would send America’s other conspicuous candidates for some form of intervention — Google and Amazon.

Democratic nominee Elizabeth Warren latched on to the story and reiterated her call for the big US tech companies to be broken up.

I’ll leave you to form your own opinion on the merits or otherwise of this path.

The task of today’s Profit Watch is merely to observe the increasing uncertainty this puts around the FAANG stocks. Markets do not like uncertainty…

The world turns against social media

Mark Zuckerberg has another problem besides his old dorm mate. Singapore’s latest social media laws have now gone into effect.

Authorities there now have the power to regulate content and prosecute for violations ‘against the public interest’…as defined by the government.

We’re not talking a limp slap across the wrist here. Using fake accounts or bots to spread ‘fake news’ could see fines of US$733,700. Other transgressions could see jail time.

If this spreads, the potential for Facebook to run up potential liability could get very worrisome.

It’s interesting to note that Facebook’s stock has retreated from the little pop it got after it released its quarterly earnings report on 24 April. 

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But overall, the market has done the same thing. Which is leading the other?

Truth be told, I’m not sure. But Facebook is not alone in getting snarled up in issues like this.

I’ve mentioned lately how Google has become the EU’s favourite whipping boy and source of cash. It’s been fined three times. The bill runs into the billions.

It also now has a problem child in YouTube. 500 hours of new video are uploaded every minute.

Children are heavy users of YouTube and run the risk of being exposed to extremist content or targeted by predators. Regulators are beginning to rumble that YouTube needs to be tamed too.

We also have streaming company Spotify instigating an investigation into Apple from the European Union’s antitrust competition commission. Stay tuned for more on that one.

Just how important is this?

Stocks are a dud asset class without these guys

Recently, some researchers took the MSCI World Index and subtracted the ‘FAANG 6’. That’s Facebook, Apple, Amazon, Netflix, Google and Microsoft.

Take a look…

Source: Bloomberg

The white line in this chart is the FAANGS powering along. The blue line is a big bunch of developed-market stocks.

Conclusion? Without the big earnings growth of US tech, stocks in general would have been a lot less fun over the last 18 months.

They’ve basically done nothing as an asset class (another reason why you need to look at individual stocks that can drive your returns up like this one).

This situation looks like it’ll get worse before it gets better — from the view of the tech companies. It’s not as if the momentum is going to fade away here. One more bad incident and it could really inflame the debate to do ‘something’.

Countries like Singapore, Britain and Australia are already pushing ahead with laws to restrict these platforms in powerful ways.

And few countries will feel much sympathy for American industry. Donald Trump is aggravating the Europeans with his stance on Iran and tariff policy.

He’s pushing the Japanese to open up their markets to US products or face tariffs as well. He keeps rattling China. And White House National Security Advisor John Bolton has labelled Cuba, Venezuela and Nicaragua the ‘troika of tyranny’.

They may play to the crowd at home, but there’s a giant middle finger going up towards the US from the rest of the world.    

You better strap yourself in. The world is likely to become a lot more volatile than it already is. I guess the best you could say right now is that we live in interesting times.

Best wishes,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch

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