How Big Tech became such a big target on Capitol Hill

  • The five U.S. tech giants are now valued at about $7 trillion, up from $2 trillion five years ago.
  • As lawmakers made clear in a report released this week, they view Big Tech as having dangerous monopolistic power that needs to be checked.
  • A number of things have taken place in the past decade that turned the Silicon Valley-Seattle corridor into a target for Washington politicians.



Mark Zuckerberg wearing a suit and tie: Facebook Chief Executive Mark Zuckerberg walks past members of the news media as he enters the office of U.S. Senator Josh Hawley (R-MO) while meeting with lawmakers to discuss


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Facebook Chief Executive Mark Zuckerberg walks past members of the news media as he enters the office of U.S. Senator Josh Hawley (R-MO) while meeting with lawmakers to discuss

After a 16-month investigation into competitive practices at the largest U.S. tech companies, Democratic congressional staffers laid out their findings this week in a 449-page report. They concluded that Apple, Amazon, Facebook and Google enjoy monopoly power that needs to be reined in, whether that means breaking the companies up, blocking future acquisitions or forcing them to open their platforms.

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Wall Street shrugged at the news. Three of the four stocks rose the day after the report’s release, reflecting investors’ long-held view that regulators and politicians are in no position to squelch Big Tech’s continuing rise and market share expansion.

Still, lawmakers certainly aren’t putting the matter to rest. And with Joe Biden carrying a commanding lead in the polls less than a month before the Nov. 3 election, tech companies face the possibility of Democrats controlling the White House and both branches of Congress in 2021.

Should Democrats win the Senate, it would put Elizabeth Warren and Bernie Sanders, who are among the loudest voices calling for the break up of Big Tech, in the majority.

Here’s what Warren had to say in early 2019:

“Today’s big tech companies have too much power — too much power

Feds may target Google’s Chrome browser for breakup

Justice Department and state prosecutors investigating Google for alleged antitrust violations are considering whether to force the company to sell its dominant Chrome browser and parts of its lucrative advertising business, three people with knowledge of the discussions said Friday.

The conversations — amid preparations for an antitrust legal battle that DOJ is expected to begin in the coming weeks — could pave the way for the first court-ordered break-up of a U.S. company in decades. The forced sales would also represent major setbacks for Google, which uses its control of the world’s most popular web browser to aid the search engine that is the key to its fortunes.

Discussions about how to resolve Google’s control over the $162.3 billion global market for digital advertising remain ongoing, and no final decisions have been made, the people cautioned, speaking anonymously to discuss confidential discussions. But prosecutors have asked advertising technology experts, industry rivals and media publishers for potential steps to weaken Google’s grip.

DOJ is separately preparing an antitrust suit accusing Google of abusing its control on the online search market, which the department could file as soon as next week. Targets of that complaint are expected to include the ways Google uses its Android mobile operating system to help entrench its search engine, POLITICO reported last week.

Spokespeople for Google and the Justice Department declined to comment Friday.

The expected litigation comes as Google and fellow tech industry heavyweights Facebook, Amazon and Apple are facing growing scrutiny from both Republicans and Democrats in Washington for issues such as their squashing of competitors, treatment of users’ private data and handling of disinformation in the presidential race.

One major question facing the prosecutors in both suits: What fixes should they seek to curb Google’s power?

In the advertising investigation, DOJ and

Morgan Stanley Analysts Reiterate $245 Price Target, See Promising Future in Microsoft’s Gaming Business

On Thursday, Morgan Stanley analysts reiterated their Overweight rating on Microsoft (MSFT) with a $245 price target. The analysts see great upside for Microsoft ahead of new Xbox console launches and following the $7.5B acquisition of game developer and publisher Bethesda Softworks.

The long-awaited release of the Xbox Series X/S console is approaching quickly. As expected, Microsoft should experience an uptick in hardware sales driven by the increase of “work/stay/play at home” activities from consumers. “The increase in gaming hardware revenue in FY21 vs.FY20 of $779 million in our model is already pressuring our existing FY21 gross margin estimates by ~35bps”, stated by Morgan Stanley analysts.

The analysts further noted: “Microsoft’s revenue base has grown meaningfully since (MSe $156 billion revenue in FY21 vs $110 billion in FY18), thus making the margin dilutive effect less meaningful now, in our view. Despite this modest gross margin headwind, we look for FY21 gross margins to expand YoY to 69%, ahead of consensus at 68.3%.”

Gross margin fears shouldn’t be as bad as feared with the analysts commenting that “broader gross margin expansion in FY21 remains underappreciated”. FY21 Gross Margins will benefit from accounting changes and continued Azure improvements.

The accounting changes include a ~$2.7 billion benefit to COGS from lower depreciation expenses in FY21. This will tackle Commercial Cloud gross margin, a big concern that investors had come into the fiscal year. This will benefit Azure margins in the coming years, estimated to go from 56.2% in 2020 to 65.0% in 2021. Beyond FY21, analysts expect to see a more measurable pace of expansion supported by growth in Dynamics and Gaming Softwares/Services.

In addition, the argument can be made that the $7.5B Bethesda Softworks acquisition is a justifiable price tag. With the growing Xbox Live community and Game Pass ecosystem, Microsoft’s strategy

Shopify Gets Target Boost From KeyBanc on Fulfillment Network

Shopify’s  (SHOP) – Get Report Fulfillment Network is “a full-fledged, tightly integrated fulfillment solution,” according to a KeyBanc Capital Markets analyst, who raised his price target on shares of the e-commerce software-and-services provider to $1,250 from $1,150.

Shares of the Ottawa-based company were off 1.1% to $1,054.

Analyst Josh Beck, who has an overweight rating on the stock, said the Shopify Fulfillment Network, which was launched last year, “is a full-fledged, tightly integrated fulfillment solution for Shopify merchants and includes order/inventory management solutions, branding and data controls, and access to scalable, flexible warehousing space to sell across multiple channels.”

“Following our SFN deep dive, we walk away more constructive on Shopify’s opportunity to build a new software ‘brain’ to orchestrate the fulfillment value chain,” Beck said.

Beck noted that a broad array of robotic systems has been developed to automate and optimize fulfillment across of variety of functions, such as picking, moving, and sorting, leveraging both hybrid human/robot and purely robotic operations.

Warehouse-fulfillment automation has attracted significant venture capital and corporate investment, Beck said, “leading to an impressive array of robotic systems that are automating and optimizing the fulfillment across a variety of functions.”

The analyst said that, assuming fulfillment costs represent about 15% of gross market value, he estimated that the fulfillment TAM (total addressable market) “could approach half a trillion dollars of spend in the coming years excluding China.”

Goldman Sachs on Monday initiated coverage of Shopify with an equal-weight rating and a $970 price target.

“We see Shopify continuing to expand and capitalizing on the attractive eCommerce tailwinds,” analyst Keith Weiss wrote, “and highlight a $25B ‘serviceable’ opportunity for the company driven by international expansion, continued Payments penetration, and growth within Shopify Fulfillment Network.”

Amazon Price Target Raised to Wall Street High by Pivotal

Investors and analysts have been framing the Amazon  (AMZN) – Get Report sum-of-the-parts valuation wrong, according to a Pivotal Research analyst, who raised his price target for the internet retail giant to $4,500 from $3,925.

Shares of the Seattle-based Amazon were up 1.6% on Thursday to $3,200.08.

Analyst Michael Levine, who kept a buy rating on the shares, said in a note to clients that Amazon’s advertising was only 5% of revenue, but is a “far greater contributor” to overall non-Amazon Web Services EBIT margins than Wall Street recognizes.

“Said differently,” the analyst said, “if advertising was viewed as a stand-alone business unit … it would represent well north of 300% of 2020E non-AWS EBIT.”

Based on his view that there is “massive upside” to estimates by fiscal year 2024, the analyst increased the firm’s target to a Wall Street-high of $4,500. 

Levine thinks investors are “materially underestimating” the earnings power of the ad business. He called Amazon the “best mega-cap on a multi-year basis.”

“Ironically, AMZN over the last few years has gone from the mega-cap disclosing the least to the one disclosing the most,” he said.

Levine estimated that at least 85% to 90% of the Amazon business today is sponsored listings.

“In this scenario,” he said, “an advertiser pays for higher placement within the sort order, the user stays on AMZN, and AMZN keeps the transaction and transaction data.”

Separately, Jefferies analyst Brent Thill said the company hosted a conference call with a supply chain/logistics expert to discuss the current state of Amazon’s fulfillment network.

Thill, who has a buy rating and a $3,144.88 price target, said increased customer demand is causing Amazon to expand capacity at an unprecedented pace and that expanded same-day delivery could be just 12 months away. 

In addition, he said,