Biden administration means more regulatory uncertainty for big tech

Yahoo Finance's Brian Sozzi, Myles Udland, and Julie Hyman break down the outlook for big tech.

Video Transcript

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JULIE HYMAN: We've been talking a lot about what to expect in the Biden administration, and one of the implications that we are continuing to watch is what happens with big tech and regulation of big tech. And I think it was Amy Wu Silverman, who was on a little bit earlier, who touched on this, that that regime might not be a super friendly one for, perhaps, some of the big tech companies. That's something that you're digging into also, Brian.

And, you know, I have to admit a little skepticism here just because we've been talking about this for a long time. That doesn't mean it's never going to happen, but there's been difficulty on the part of Washington kind of getting its arms around this issue.

BRIAN SOZZI: You're right, Julie. This has been really hanging around for a while. And, the way Wall Street is thinking about it, it will also hang around this year, and, I think, serve, at least in their view, in the view of analysts and, increasingly, I would say money managers, just given how the stocks have performed year to date-- it will serve as a black cloud over a lot of these big-cap tech stocks. Namely, it is Facebook. It is Amazon and Google.

And I highlight here some of these points brought forward by BofA Securities analyst Justin Post. Under the new administration, you could see the administration establish a privacy bill of rights. And that restricts the use of personal data.

As you know, a lot of these big cap tech companies feast on our personal data. I mean, I have my Amazon Alexa suggesting groceries I should buy now. I don't know if it's a button I have to turn off. Nonetheless, they have that information back at HQ. It kind of creeps me out.

Number two, you could see the administration and other Democrats-- in Democrats in Congress redefine market power in large-cap tech. Number three, regulators could distinguish some of these big-cap tech companies as digital utilities. Obviously, that is not good. If you're Facebook, you do not want to be grouped in the same-- really the same sphere as an electric company.

And then, last but not least, and you heard President Trump, before he got kicked off of Twitter, really wax poetic about this, the need to revoke Section 230 of the Communications Act. If that were to happen under this administration, it can open up some of these big-cap tech companies to fines, lower sales, pressured costs. And you put all this together. This could mean that dark cloud hangs over these stocks.

It may not impact their financial results this year. It may not impact it next year. But it could weigh on the multiples some of these richly valued tech stocks could.

And then, over time, you could just see this trade flat out unwind. These are some of the most owned stocks in the entire market. I mean, you look at Google. 81% of that stock ownership, according to Yahoo Finance Premium data, is owned by institutions. That could be slowly wound down if these regulatory concerns start to pick up steam.

And it has remained-- I would argue it does remain a little unclear, you know, where the administration stands on big tech, but, by and large, I think Wall Street expects, to some degree, this administration and even, obviously, the Senate and the House to pick up the baton where the Trump administration has left off in terms of regulating big tech.

MYLES UDLAND: I think that, if we look at what happened with Microsoft in the mid '90s, Microsoft was founded in 1975, so 20 years from its founding until it got to its market dominance. You know, they faced an antitrust suit, and they ended up settling.

And Microsoft went into 15 years of consolidation, I guess you'd say. Look at the stock. The stock didn't do anything from the height of the tech bubble through 20-- I guess, what, '13, '14? Satya Nadella became CEO. Stock hit a new high.

Facebook, Google, those companies were founded in mid 2000s. So we do a full administration of talking about regulating tech, everyone saying, oh, lawmakers don't understand it. What are they going to possibly do? Well, at the end of the first Biden term or maybe the beginning of the second Biden term, we're going to be talking about 20-year-old businesses, and maybe that means it is time for them to face some sort of new regulatory regime or take it upon themselves to change their business structure in response to anticipated regulatory changes.

And I know that it's never fun to say, oh, regulation or lawmakers are going to do this to make a company change because, ultimately, the last 40 years of US lawmaking has been about, you know, acceding to corporate demands and saying, you know what? You're right. Business is the thing we need to take care of first. We'll worry about what's fair for our citizens second.

I'm not sure that the appetite among voters, however, really remains that way. I think people-- it's kind of mask off now. The 2017 tax cuts were pretty clear to most citizens, even those who did vote for Donald Trump, that people didn't care about you. They cared about big companies. I don't think people have forgotten that. I don't think they're going to forget that.

And so I just don't think that we're going to get through the next couple of years with Google or Alphabet, I guess, Facebook, Amazon operating the same way they do today. I just don't see the path forward for these businesses to continue to completely get away with whatever it is they want to get away with and then explain it away and spin it, you know, through their coms team, which is usually staffed, mostly, by lobbyists or former government officials. I just feel like that era is kind of coming to an end for these companies.

BRIAN SOZZI: Myles, and you are-- I'll just quickly add too you're seeing the market, I think, start to distinguish between potential winners and losers. And you look at Facebook stock, trading about 23 times for earnings on a price-to-earnings multiple basis. That's almost in line with the broader market.

And you talk to a lot of folks on Wall Street, and they're starting to lock in on Facebook, especially, in light of what happened on the Capitol, on Capitol Hill. And maybe Facebook is the one over the next four years. Maybe, in fact, they are broken up. Maybe WhatsApp is spun off. Maybe Instagram is spun off.

And then, in turn, what does that create? You've just created two new competitors. I guess that would be part of the main targets of why these companies are spun off. But, essentially, you have two new competitors competing with ad dollars with Facebook. That's not a good place to be if you're Mark Zuckerberg and Facebook.

JULIE HYMAN: Yeah, I mean, I have to wonder, you know, at some point, we're going to turn, and I guess we've already started to integrate this question already. We're going to turn from how does the regulation look.

Are they going to be broken up? What's going to happen with them? Is Congress going to be able to act too? Is the remedy going to be the right one for what we're trying to target?

And I think that's going to be a big question as well. If we break up Facebook, is that going to achieve what we, collectively, want to achieve? Is it going to give them less control? Or are each one of those entities just going to be as powerful? And I think that, you know, unintended consequences are going to be a really important part of this discussion as we go forward.