Top U.S. Tech Companies Face Antitrust Uncertainty

As the digital age matures, a handful of tech stocks are capturing an increasingly dominant share of internet business. Shareholders of Amazon.com (ticker: AMZN), Alphabet (GOOG, GOOGL) and Facebook (FB) love the companies' best-of-breed positioning in their respective businesses. But the more market share these companies gain, the more exposed they are to violating U.S. antitrust laws.

Alphabet shareholders are well aware of the potential fallout from antitrust violations. In June, Alphabet received a record $2.7 billion antitrust fine from European regulators. So far, Google, Facebook and Amazon haven't faced much antitrust scrutiny from U.S. regulators, but the more successful the companies are, the more that possibility becomes a concern for long-term investors.

MKM Partners analyst Rob Sanderson recently took an in-depth look at the exposure Google, Amazon and Facebook may have to antitrust regulations in the years ahead. According to Sanderson, these companies aren't currently violating U.S. antitrust laws, but laws could change in years ahead.

"Projecting current trends forward, we do see potential for unwanted outcomes over time and expect a movement to examine current antitrust laws, for which the monopoly framework is over a century old," Sanderson wrote last week.

The Sherman Antitrust Act, the basis for current U.S. antitrust regulatory action, was enacted more than 125 years ago in 1890. "We think it's likely that this new era of global platforms, massive scale and deflationary/disruptive forces will bring new regulation to deal with new-world problems," Sanderson says in his note.

For regulators, the targeted metric will likely be market share, but market share can be interpreted in different ways.

According to MKM Partners, Google accounted for just 19 percent of total U.S. media ad sales in 2016. But when considering online ad sales only, Google accounted for more than 50 percent, MKM says.

In terms of social media, Sanderson describes Facebook's market positioning as "absolutely dominant." "Facebook's $12.5 billion of advertising revenue generated in the U.S. last year represents over 80 percent of third-party estimates for social media spending," Sanderson says.

While Amazon is often mentioned as the poster child for U.S. e-commerce disruption, MKM Partners says Amazon accounted for just 30 percent of total U.S. e-commerce sales in 2016. However, when it comes to total industry growth, Amazon's share increased to 41 percent in the most recent quarter.