Google and Facebook Facing Major Headwinds in 2021

Over the last decade, Google (GOOG) and Facebook (FB) have been two of the best-performing stocks. However, their dominance could now be a liability as regulators are gunning for them.

  • Google faces anti-competitive allegations on both sides of the Atlantic

  • The NYS Attorney General has Facebook in her crosshairs

  • Big tech faces headwinds in 2021

Very often, the best-performing assets during one period turn out to be the worst during the next. Conversely, the worst-performers are often the best in subsequent periods.

It is virtually impossible to pick tops or bottoms in markets. They tend to move to levels that many consider irrational on the upside or downside, and corrections are commonplace. Buying and the bottom or selling at the top is more about luck than skill.

At the end of 2019, Alphabet (GOOG) and Facebook (FB) shares closed at $1337.02 and $205.25, respectively. In 2020, they reached highs of $1847.20 and $304.67. On December 17, the two technology companies were at the $1747.90 and $274.48 levels. The global pandemic increased earnings and pushed GGOG and FB higher to new record prices.

As we head into 2021, the prospects for further share appreciation could be cloudy for the two companies. Both are in the crosshairs of regulators and local and federal government prosecutors in the US and Europe.

Google faces anti-competitive allegations on both sides of the Atlantic

On October 20, the US Department of Justice and eleven states sued Alphabet (GOOG) for antitrust violations. California joined the suit last week, and other states are likely to in the coming weeks. California’s Attorney General Xavier Becerra said, “The lawsuit paves the way for search engine innovation with greater regard for privacy and protection.” AG Becerra is incoming President Joe Biden’s pick for Health and Human Services Secretary, a cabinet position. Mr. Becerra’s comments are a sign that the Biden administration will continue to take a hard line against the dominance of the leading technology companies.

The NYS Attorney General has Facebook in her crosshairs

Last week, New York State Attorney General Letitia James filed a lawsuit against Facebook Inc. (FB), alleging the company has and continues today to illegally stifle competition to protect its monopoly power. She said, “for nearly a decade, Facebook has used its dominance and monopoly power to crush smaller rivals and sniff out competition along the way—all at the expense of everyday users.” Other US states are joining New York as AG James leads a bipartisan coalition of forty-eight Attorney Generals charging the anticompetitive conduct. AG James pointed to acquisitions of WhatsApp and Instagram in her press conference as examples of FB’s dominant behavior.

Big tech faces headwinds in 2021

GOOG and FB had excellent years in 2020. The global pandemic increased the demand for social media and online activities, which only boosted both companies’ earnings.

Source: Barchart

The chart shows that GOOG shares moved from $1337.02 on the final day of 2019 to $1747.90 on December 17, a rise of 30.7%.

Source: Barchart

FB shares rallied from $205.25 to $274.48 over the same period, or 33.7%. Both companies have increased their values by over 30% since the end of last year.

Meanwhile, GOOG has a market cap of $1.18 trillion, and FB’s stands at Almost $782 billion. After substantial gains in 2020, the coming year could present challenges for both companies as bipartisan support to rein in their power could weigh on earnings.

GOOG and FB are knee-deep in the legal soup as we head into the new year. While both growth companies continue to earn profits and beat EPS projections by a wide margin, the coming year may be a lot different than 2020 when it comes to share performance.

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FB shares were trading at $272.30 per share on Friday afternoon, down $2.18 (-0.79%). Year-to-date, FB has gained 32.67%, versus a 16.35% rise in the benchmark S&P 500 index during the same period.

About the Author: Andrew Hecht

Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles.


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