Turn — Companies are worth more broken up
Neil Rose, June 14, 2019, https://finance.yahoo.com/news/amazon-apple-google-and-facebook-are-sith-lords-who-started-benign-galloway-165918961.html, Amazon, Apple, Google and Facebook are ‘sith lords who started benign’: Galloway
The titans of Silicon Valley aren’t going down without a fight. As calls to break up big tech grow louder, major players like Amazon (AMZN), Apple (AAPL), Facebook (FB), and Google (GOOGL) are already cooking up plans to take on government regulators looking to investigate them over possible antitrust violations. But analysts say the tech giants know themselves that breaking up is good for everyone. “The markets got it wrong. As soon as some of the smart analysts break out their pencils and look at the sum of the parts analysis, they’re going to find that these companies are worth more broken up than they are as individuals,” NYU Stern School of Business professor Scott Galloway told Yahoo Finance, adding that Instagram is worth $300 billion on its own. “Any time you look at breakups, three months, three years, five years, 10 years on, almost always the broken up companies are worth more than the original.”
Breaking up companies doesn’t hurt the companies or the economy
Ken Stephens, 6-10, 19, https://www.marketreview.com/news/should-investors-worry-about-big-tech-breakups/ Should investors worry about big ttech breakups?
The market confronted the news about the potential for restrictions on big tech companies with a negative attitude. Cooler heads have started to prevail already. In the late 19th and early 20th century, businessman John D. Rockefeller gained almost total control of the oil business. At its height, the trust that controlled all of Rockefeller’s companies was responsible for no less than 91% of all the oil production in the United States as well as 85% of all petroleum sales. The government eventually stepped in and broke up Standard Oil, splitting it into several smaller companies, although small isn’t a way to describe some of them. Today, the surviving companies of this famous breakup include Exxon, Mobil, Chevron, Amoco, and several other smaller oil companies which were eventually sold to Sunoco and BP. Exxon and Mobil eventually merged, and became the largest oil company in the U.S., with Chevron in second place. They may have broken up the company but Rockefeller still owned them and this breakup ended up adding significantly more to Rockefeller’s wealth. In terms of one’s percentage of GDP, Rockefeller’s wealth far surpasses any of the more modest multi-billionaires of today, and this breakup played a significant role in this. Those who believe that breaking up a company is a bad thing for investors just assume this and don’t really look very much into the matter. Moves like this do serve to reduce things that interfere with competition, the goal of antitrust suits, but if we think that this will reduce the collective footprint of these companies, we may want to have another look at this. A more recent case in point is with eBay’s spinning off PayPal. Since the breakup, both eBay and PayPal have both done well, and while they may have done so together as well, they certainly have not suffered or inflicted any punishment upon themselves from any of this. This move in fact gave PayPal what they really needed for their stock to really shine, the ability for investors to focus on them along, and their price has tripled since and show no signs of stopping. eBay’s growth has been much more modest but they are still up 40% from the time PayPal left in 2015. Collectively, this move has added a lot of value to the stocks, and some people are expecting the same thing should we break up companies such as Amazon, Alphabet, Facebook, and Apple. Big tech companies make all sorts of acquisitions, with the new companies getting benefited by being brought into the fold and oversight of a much more successful and resourceful company. At some point though, after whatever transformation and enhancements that are involved take hold, it can be wise to let them leave the nest and get back to building their own niche. PayPal is a perfect example of this, as it was allowed to grow by being eBay’s payment processor, and after they left, they still maintained this relationship but now were in a position to attract a lot more investment from those who had a yearning to get in on the new digital payment craze. PayPal is by far the market leader in this field and now has much more control over their own niche than eBay could ever hope for, given they live in the very long shadow of Amazon.
break-up benefits the markets
Ken Stephens, 6-10, 19, https://www.marketreview.com/news/should-investors-worry-about-big-tech-breakups/ Should investors worry about big tech breakups?
With all this said, if somehow regulators managed to win cases against one or more of these big tech companies, this would likely be bullish for the companies affected as well as their shareholders, as the value created by any breakups would allow for people to bid up their stocks even more. At least part of this effect, if not all of it, comes from the fact that stock prices are set by investor sentiment, and by breaking up your company, you can target more investors and even create more excitement among investors. This is exactly what happened with
break-up benefits the markets
Ken Stephens, 6-10, 19, https://www.marketreview.com/news/should-investors-worry-about-big-tech-breakups/ Should investors worry about big tech breakups?
With all this said, if somehow regulators managed to win cases against one or more of these big tech companies, this would likely be bullish for the companies affected as well as their shareholders, as the value created by any breakups would allow for people to bid up their stocks even more. At least part of this effect, if not all of it, comes from the fact that stock prices are set by investor sentiment, and by breaking up your company, you can target more investors and even create more excitement among investors. This is exactly what happened with PayPal, which is one of the most loved stocks out there these days and has been a simply fabulous investment since they branched off on their own.
Breaking up Alphabet/Google would increase investment
Market Watch, June 11, 2019, https://www.marketwatch.com/story/why-a-google-breakup-would-be-good-for-alphabet-investors-2019-06-11?mod=hp_investing, If the government breaks up Google, would it be worth more?
Alphabet Inc. investors have been sweating a potential antitrust investigation into the Google parent, but one analyst suggests that regulatory scrutiny — meaning a potential breakup of the company — could be reason to cheer. Needham’s Laura Martin said Tuesday that a breakup of Alphabet GOOG, -0.15% GOOGL, -0.16% could carry about 50% upside for shareholders, in part because investors are generally willing to pay more for pure-play companies, when they can be more selective about how much exposure they get to a particular trend. Time Alphabet Inc. Cl A Jul 18 Sep 18 Nov 18 Jan 19 Mar 19 May 19 US:GOOGL$900$1,000$1,100$1,200$1,300$1,400 Martin also thinks that any companies formed after a breakup of Alphabet, which has long declined to provide financial metrics for businesses like YouTube, would be more forthcoming with their disclosures because they would be smaller entities. Management at the hypothetical new companies wouldn’t be able to hide behind search-ad financials, she wrote, and executives might not engage in as many expensive “moonshot” projects with “questionable” returns on investment. See also: The YouTube and Instagram secret that Google and Facebook don’t want you to know She estimates there’s a 50% chance that the Justice Department determines that a breakup of Alphabet is “the best remedy” and a 50% chance that Alphabet is deemed to be anticompetitive. To Martin, this implies a 25% chance that the company could get split up three years from now. X See Also What Is a Death Cross? The Justice Department is more focused on antitrust issues than privacy concerns, according to Martin, which lessens the “economic risks associated with regulatory outcomes.” The department also conducts investigations in a closed and silent manner, she said, meaning that if Alphabet was to disclose an investigation, investors might not hear anything further for at least two years.