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Regulations Regulate Tech

Tech Letter

I’m not saying the time is up for big tech.

The Magnificent 7 are still by and far great companies who print money.

They dominate in a way that was unfathomable just a generation ago.

Trillion-dollar companies are now commonplace in tech and we have pushed into valuations of over 2 and pushing towards $3 trillion.

Success like this easily could make them easy targets and that is what has become of them in Europe as Apple (AAPL), Google (GOOGL), and Meta (META) are in the firing line under the sweeping new Digital Markets Act tech legislation.

Apple has already been slapped on the wrist quite hard with a $2 billion fee after the European Commission said it found that Apple had applied restrictions on app developers that prevented them from informing iOS users about alternative and cheaper music subscription services available outside of the app.

In a third inquiry, the commission said it is investigating whether Apple has complied with its DMA obligations to ensure that users can easily uninstall apps on iOS and change default settings. The probe also focuses on whether Apple is actively prompting users with choices to allow them to change default services on iOS, such as for the web browser or search engine.

The fourth probe targets Alphabet, as the European Commission looks into whether the firm’s display of Google search results to choosing its own products over other services.

The fifth and final investigation focuses on Meta and its so-called pay and consent model. Last year, Meta introduced an ad-free subscription model for Facebook and Instagram in Europe. The commission is looking into whether offering the subscription model without ads or making users consent to terms and conditions for the free service is in violation of the DMA.

If any company is found to have infringed the DMA, the commission can impose fines of up to 10% of the tech firms’ total worldwide turnover. These penalties can increase to 20% in case of repeated infringement.

Preferring one’s own product from companies like Apple, Amazon, and Google is not a shocking phenomenon. Business can be a dirty game and self-selecting ones products because they own the platform they are sold on is almost common knowledge to the average consumers.

Organizational bodies like the European Commission have an incentive to fine American tech companies that do business in Europe.

Europe has no alternative apps and aren’t competitive in the tech space.

The desperate reach of European bureaucracy has decided to just steal the money in the form of tech fines instead.

One big takeaway that sticks out like a sore thumb is the clear trend to the low-hanging fruit being plucked.

The incremental dollar will be harder to earn for big tech as regulatory commissions around the world zone in on their anti-competitive practices.

I doubt that fines will get so big to the point that these tech firms will go bankrupt, but this could set the stage for a slew of earnings misses which could knock down the share prices.

I still believe these stocks are buys, but only after they are beaten down and repriced.

I wouldn’t go chasing here with regulatory issues rearing its ugly head and revenue forecasts disappointing.

If I had to choose one to avoid then it would be Apple.

 

 

 

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