European regulators are once again coming after big American technology companies. Some say it is the beginning of the end for them. Not so fast.
The European Union passed the Digital Markets Act on Thursday, a far-reaching set of laws that is designed to level the playing field between small and large tech businesses. It will not do that.
Investors should use any near-term weakness to buy Alphabet (GOOGL),
It feels like we have seen this movie before. The EU took dead aim at Alphabet and Meta Platforms
Similar legislation was quickly adopted in Japan, South Korea, South Africa, Brazil and the United Kingdom. The state of California even adopted the fundamental facets of GPDR with its consumer privacy act.
Unfortunately for the regulators, Alphabet, Meta, Amazon.com (AMZN), Apple
The DMA is supposed to hamper platforms with market values exceeding $75 billion, according to a report from the New York Times
These new limitations might have stung a decade ago.
Large American tech firms didn’t cheat to win the digital landscape. They won it with better products and services. They earned the trust of European customers. The DMA, and the GPDR before it, ask consumers to trust smaller companies with their personal data, in a world riddled with identity theft other cybersecurity issues. This will be a non-starter for most. Consumers are likely to pick large platforms they trust, then go all in, to the detriment of fledgling competitors.
Then there are the other advantages. Big American firms are winning the innovation race.
Alphabet and Meta don’t need tracking technology to serve ads. They are using machine learning and other artificial intelligence to build trustworthy ad profiles. Amazon.com is admired throughout Europe for its low prices and wide selection. The DMA will increase prices. And the market for third-party iPhone app stores is likely smaller and more bothersome than regulators believe. New regulations, although well-intended, only shine a bright light on the strengths of the largest tech platforms.
Investors know this. Since the GPDR was implemented May 25, 2018, the market capitalizations of Apple, Alphabet, Amazon.com and Meta have grown 285%, 161%, 106% and 19% respectively.
Alphabet is especially interested. The parent company of Google
Executives have put Alphabet in a unique position as the dominant player in a digital ad marketplace that now accounts for 64.4% of the $763.2 billion global ad spending pie, according to December 2021 report from the Wall Street Journal,
Sales at Alphabet during 2021 grew 41% year over year, to a record $257.6 billion. Earnings surged 89% to $76 billion, another milestone.
At a price of $2,833, shares trade only 20.8x forward earnings and 7.2x sales. Given that gross operating margins were 56.9% in 2021, these financial metrics remain inexpensive.
Alphabet shares could easily trade to $3,625 with 18 months, a gain of 28% from current levels. Investors should use any fallout from the new EU regulations to buy shares.
To learn how to improve your results in the market dramatically by buying options on stocks like Ford and Tesla, take a two-week trial to my special service, Tactical Options, Click here, Members have made more than 5x their money this year,
Credit: www.forbes.com /