If Big Tech Breaks Up, Which 3 Subsidiaries Would We Invest In?
Updated: Jul 22, 2019
As companies like Alphabet, Amazon, and Facebook come under more antitrust pressure, which of the subsidiaries looks like the most exciting investment?
Big Tech is undergoing some big scrutiny at the minute.
As we stare down the barrel of a new presidential election, it's become a unifying theme amongst candidates across the aisle that companies like Alphabet, Amazon, and Facebook are getting too big and powerful. Democratic hopeful Elizabeth Warren, for example, has recently unveiled a "Break Up Big Tech" billboard in San Francisco — staking her claim for the investigation of these companies right in the heart of the American tech industry.
It has also emerged over the past few months that both the Justice Department and the Federal Trade Commission (FTC) are working together to review these companies and alleged anti-competitive practices.
So, with so much pressure set to come on these companies over the next few years, here are some of the potential spin-offs that we'd be most excited about investing in should Big Tech break up.
1. Amazon Web Services
Large companies such as Amazon (NASDAQ: AMZN) might currently seem untouchable, but if the delivery giant was forced to break up, there would still be a lot of excitement for investors with the Amazon Web Services division.
Amazon’s premium cloud infrastructure arm is top of the pile of the many successful competitors out there. It brought in a whopping revenue of $25.7 billion in 2018, which means that this single service accounted for almost 10% of the company’s $232.887 billion total last year.
In 2018, Jefferies analyst Brent Thill estimated that AWS alone could be worth $350 billion within just a few years. This stands to reason given the superior functionality of AWS, the big partnerships it has (with Salesforce, GE, and Kellogg's, for example), and the fact that it was the first public cloud-computing service. With more and more tools and products moving to the cloud, people will continue to need more and more services like AWS as time goes on.
Back-end cloud infrastructure services such as this are on the rise, and when you are at the top of a very competitive game, you know that you are doing something right. Should Amazon break up, Amazon Web Service would be an enticing investment that a lot of investors would only love to get in on.
Facebook has a lot of sub-divisions at the moment, including the much talked-about cryptocurrency venture that's about to be launched. However, its most enticing subsidiary by far has to be Instagram.
When Facebook (NASDAQ: FB) bought Instagram for $1 billion in 2012, it had 30 million users and was yet to make a single cent. Now, Instagram is estimated to be worth over 100 times that amount.
When comparing this with the $19 billion acquisition of WhatsApp in 2014, which still generates almost no revenue, it is clear to see what a bargain Facebook got here. With over a billion active members and rising, Instagram also has a higher level of trust amongst its users. It is simple, ‘safe’, and not consider quite as invasive as its parent company. In 2018 Instagram generated almost $9 billion in ad revenue or almost 20% of Facebook’s overall revenue from advertisements.
Some analysts estimate that by 2020, Instagram will account for 30% of Facebook’s revenue, as well as roughly 70% of new revenue.
It seems likely that Instagram will be the driving force behind Facebook going forward, but we would certainly be willing to invest in such a promising company should they be forced to break away from Facebook and go at it alone once more.
The once untouchable behemoth that is Alphabet (NASDAQ: GOOG) has begun to show the signs of collapsing under its own success. In recent months, there has been talk of the company growing unmanageably large, as well as multiple calls to break up the giant, especially in Europe.
While most people associate Alphabet with Google search and advertising, one of their more unusual projects would also be an extremely interesting investment opportunity if it were to strike out alone: Loon.
The purpose of Loon is to bring high-speed internet connectivity to underserved areas using high-altitude balloons and solar power networks. This would eliminate the need for tower infrastructure in harsher terrains. The first tests for this exciting project will take place in Kenya later this year after a $125 million investment from HAPSMobile in April.
Should such a project be successfully pulled off, it would open up entirely new, developing markets who would need to use this as the only source of connectivity. If they could survive the initial break-away from their parent Alphabet, a company with such ambitions would be well worth an early investment for long term growth.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Alphabet (Google), Amazon, and Facebook. Read our full disclosure policy here.