Google was firmly rapped on the knuckles by the EU competition regulator this week, and slapped with a record $2.7 bn fine for what were deemed to be unfair practices in favoring its own comparison-shopping service in search results. A fine of this nature, while symbolic, is little enough compared to a company (Alphabet) that generates $90 bn in revenue per year and the stock only fell by 2%. However, product changes required by this may ultimately cost the company in terms of operating profit. It is ironic that this clamp down is coming at a time that tech titans are soaring in the marketplace, with little prospect, at least in the US, of increased regulation. Online advertising is almost in a lock between Google and Facebook, by far the dominant players, and no third party is yet rearing its head to make a dent in this duopoly.
These dynamics are important due to the tendency of markets (and index investors) to be swayed by a few very large names (we recall the dominance of the FANG stocks in 2015). Most of the dominant players are therefore priced to perfection currently and indications that all may not be as it seems are likely to be punished by investors. We shall watch this space.
Meanwhile another malware/ransomware attack – this time named Goldeneye – spread from the Ukraine, this time with the apparent aim of data destruction not financial gain. Victims included the Chernobyl radiation monitoring system, British advertiser WPP, the Kiev metro, a number of banks, an airport and an international law firm. Once more, markets registered no reaction, so maybe the incidence of such an attack is now the “new normal”.
Markets were on a high as the month drew to an end boosted by the buoyant bank stress test results and a rebound in tech stocks. Tech remain the best performer for this year despite some softness this month. It is interesting to view the bounty that the “low return environment” has presented to investors this year. As we switch to the second half, we hold our collective breaths to see if any negative surprises are in store.