Friday Market Insights – The anti-trust lawsuit against Facebook is threatening the whole tech sector

Ian Lusher: [00:00:04] Welcome to Friday Market Insights. I am in Ian Lusher, I’m a partner and portfolio manager with Genus Capital Management and I’m joined by Mike Thiessen, who is also a partner and as our director of Sustainable Investing.

Ian Lusher: [00:00:19] So, Mike, we might as well start with the usual and what has happened this week in the markets?

Mike Thiessen: [00:00:26] Yeah, so it’s quite an exciting week this week in the markets. Overall, the markets were down, so S&P 500 down about a percent and a half this week. On the vaccine side, it was quite positive. Canada approving the vaccine and the US FDA approving it for early recommending approval for emergency use. And then over this weekend, there’s another committee that’s going to be deciding whether it should be approved for the American public. So quite positive there, but it was all weighed down by more negative news when it came to the US stimulus bill and then also the tech sector. So when it comes to the stimulus bill, there’s really trouble moving anything forward right now. There’s a lot of argument, debate over certain issues like business liability, shield, like over aid to states and local governments, how that’s going to happen. So it does seem like there is a real gridlock there. And then when it comes to technology, there was the FTC Editress lawsuit against Facebook, and there’s a lot of implications around that for Facebook and for other tech companies. So that’s really weighing down on the Nasdaq this week, those other downgrades in the tech sector as well. So that all heavily weighing down on the overall overall market. So not good for the market, but good overall for for the vaccine, I guess, this week.

Ian Lusher: [00:01:49] Right. So we might as well get right into the covid vaccine. What is the effect of and what we’re talking about is the Pfizer vaccine that’s been approved by the U.K. It’s been approved by Canada, and it is close to being approved by the US. So what’s the impact of having a vaccine ready to go today for Genus clients?

Mike Thiessen: [00:02:14] Yeah, well, I think that it’s it’s very positive for the long run, and I think that it is positive for the economy in the short run, too. I think I think in the long run, it means that we’re going to be building back our economy to something that’s somewhat similar to two thousand nineteen style economy. But of course, we’ve adopted so much in twenty twenty that I don’t think we’re going to be giving up a lot of these adoptions. I think, I think a lot of, you know, working from home and more, more health, safety, things like that are going to continue to happen and just different ways that we do business buying online, things like that. So I think but I think overall, the economy and especially certain areas will progress because of this. And then I think in the short term, we’re not going to see very positive changes when it comes to visually seeing it at restaurants or travel or things like that. But I think behind the scenes, a lot of business owners are going to gain a lot more confidence. They’re going to not have as much uncertainty around the economy and what’s going to be happening in the future. So they’ll be able to make more long term decisions. They’ll be able to make hiring decisions, possibly buy equipment or buying assets. And a lot of this has a lot of positive knock on effects for the economy. So I think both long run and short run, this is great for the economy and good for Genus clients.

Ian Lusher: [00:03:31] Right? Great point. I mean, it’s it’s a combination of hope, confidence and some certainty that we’re going to be able to move forward. So it’s a great point. You mentioned the Facebook anti-trust. You mentioned this when you were talking about the Nasdaq and having a bit of a midweek struggle, and that was largely due to forty eight states and the FTSE, which is the Federal Trade Commission, announcing an antitrust lawsuit against Facebook, mainly about WhatsApp and Instagram, perhaps breaking those up. So can you explain to everyone why the government and why these states are going after a company like Facebook and why this is? Does it have an impact on other companies like Google?

Mike Thiessen: [00:04:21] Yeah, yeah, yes, a big reason for this is just that it’s building a monopoly, a lot of these big tech companies have massive integrated systems, basically empires of businesses that all are integrated, working together and really are great business models overall. But it really kills competition. And so these agencies are exist to to build competition in the economy and to find systems that are that are killing the competition, which is ultimately what these business models are doing. And you see this with Google, with with Amazon. I think Amazon is probably one of the biggest ones. You know, you have the marketplace, you have Amazon Web services, you have electronics, you have videos, you have all these billion dollar businesses, all in one integrated system, and they all help propel the other ones. It’s a big flywheel. And it’s you know, it’s a case study that is studied across the world as a great way to build a business that is that is going to be a monopoly and kill competition. But ultimately, these agencies don’t want don’t want to see competition killed. So I think this the implications of this are that these tech companies are probably still going to be able to grow even if they’re broken up. But they just won’t be able to grow as fast without an integrated system. And they won’t be able to make big strategic buys in the future, which is really help them to grow and helps cut out other competitors in the market. So so we’ll probably hurt them in the long run, even though they’ll continue to grow. But it will help other tech companies that are that are trying to compete.

Ian Lusher: [00:05:53] Right. I mean, people don’t really realize that Amazon even owns newspapers, Washington Post. So these companies are huge and they’re multifaceted. They’re not the industry. And at some point they become so big that it’s hard to eliminate competition.

Mike Thiessen: [00:06:10] Yeah, exactly.

Ian Lusher: [00:06:11] So now the two companies that were in the media, probably a lot of our clients have heard these names, Doordash and Airbnb both had IPOs, which is an Initial Public Offering to just wild success, actually both more than doubled their asset value of the company in a couple of trading days. So where does this what does this say about the health of the market and perhaps the appetite for these types of growth companies? Is this kind of a flash in the pan thing or is this just a general barometer of the appetite of the market?

Mike Thiessen: [00:06:53] I think that the market just is in love with technology right now, especially technology companies that are based on platforms. Like a lot of people don’t know about Facebook primarily is a platform for advertisements, Amazon as a platform for a lot of products, and these companies have done extremely well. And so Doordash and Airbnb are our platforms. And so a lot of investors are are really into these platforms. And like you said, Doordash is having an IPO at the exact perfect time for them. If they’re going to do this IPO in the next year or two years, there’s not going to be near the amount of buzz around something like Doordash as there is right now. Everybody’s using them. When it comes to Airbnb this year hasn’t been a great year for them? In in March and April, their business was down 80 percent. This last quarter, business was down about 20 percent. So it’s not very good. But still, Airbnb has really been a favorite of a lot of investors and venture capitalists for the past few years. And probably if they were to IPO a year ago, they probably would get a lot higher valuation. But still, their valuation is I think it’s about eighty six billion right now, which is higher than any other online kind of travel site. Plus it’s higher than Marriott and other large international hotel chains. So still they have a very high valuation. And I think it really builds the resiliency that they need. I think in case they ever come into cash struggles in the future, they know that they have the public markets that can help them raise funds if anything like this happens. So so builds for their their long term resiliency, I guess.

Ian Lusher: [00:08:34] Right. Well, that’s it for this week. We want to wish our Genus clients very happy holidays. Mike and I probably won’t see us again to the New Year. So happy holidays to you all. And thank you very much.

Mike Thiessen: [00:08:47] Thank you.