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Calls to Break Up FAANG -- Except This One

Danny Vena, The Motley Fool

The group of companies responsible for the acronym FAANG -- Facebook (NASDAQ: FB), Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), Netflix (NASDAQ: NFLX) and Google back before renaming itself Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), have been among the most popular companies with investors, and all have produced market-beating returns over the past decade.

Unfortunately, all but one have come under fire in recent years, with cries of monopoly from competitors as well as a growing body of regulators. Presidential candidate and senator Elizabeth Warren recently called for stricter regulation of these companies, and even went so far as to call for the breakup of big tech, arguing, "They've bulldozed competition, used our private information for profit, and tilted the playing field against everyone else." 

Only Netflix was spared from Warren's wrath, resulting in one brokerage house calling the streaming giant its top pick. Let's recap the controversies that have plagued the other companies in recent years, why the streaming giant was spared, and what all this means for investors.

Gavel on an open lawbook on a desk with other books in the background.

Image source: Getty Images.

Facebook

Since the Cambridge Analytica scandal broke early last year, the hits just keep coming for the social media giant. The company has been accused of propagating fake news and allowing Russia to interfere in the 2016 U.S. election. The company also announced last year that as many of 30 million accounts had been breached and it was accused of sharing personal user data with more than 150 large companies. Facebook is facing investigations by the Federal Trade Commission (FTC), the Securities and Exchange Commission (SEC), and the Justice Department's securities fraud unit, among others. 

Warren said that "more than 70% of all internet traffic goes through sites owned or operated by Google or Facebook." She called for federal regulators to unwind Facebook's acquisitions of WhatsApp and Instagram, which would create much needed competition in the social media space.

Apple

There have long been complaints from rivals regarding Apple's practice of charging as much as 30% to those that sell apps on the company's App Store, while decrying the company's unfair competitive advantage. This argument was repeated in a recent complaint by Spotify to the European Union. The music streaming company accused Apple of favoring its own services over those of competition in the App Store. 

Warren echoed that sentiment saying Apple needed to be split from the App Store. "Either they run the platform or they play in the store. They don't get to do both at the same time." Because Apple runs the platform, it gets to favor its products over anyone else's, providing what Warren calls an "enormous comparative advantage." 

Amazon

Amazon is the dominant e-commerce platform in the U.S. and is trying to replicate its success throughout the world, much to the dismay of numerous antitrust regulators. The company is already the subject of an investigation by the European Union (EU), which claims the company uses the data it gathers from sellers on its marketplace to introduce competing products and help set prices. 

Warren points out that nearly half of all e-commerce in the U.S. goes through Amazon. She also says that Amazon forces smaller competitors to sell at discounted rates and "crushes" small companies by copying the goods they sell and creating its own branded versions, echoing the EU complaint. Warren is calling for the unwinding of Amazon from its acquisitions of Whole Foods and Zappos.

A group of kids using smartphones.

Image source: Getty Images.

Alphabet

Alphabet's two premier properties -- Google and YouTube -- have had their share of problems in recent years. There have been plenty of instances when advertisers boycotted or pulled ads after their products appeared next to videos promoting hate speech, offensive content, and extremist views. Things got even worse for YouTube recently, when it was revealed that pedophiles were posting inappropriate comments on children's videos. Additionally, many have decried the hold Google and Facebook have on the digital ad space, controlling about 58% of the market last year, leaving advertisers no other choice but to use their platforms. 

Warren says that Google also "snuffed out" a smaller competing search engine by demoting its content and favors its own restaurant ratings over competitor Yelp. She contends that Google's ad exchange should be split apart from its search engine, while unwinding its acquisitions of Waze, Nest, and DoubleClick.

Netflix

Netflix has avoided charges of monopolistic practices and acquiring or crushing potential competitors. Even as the biggest player in the nascent streaming industry -- with more than 139 million subscribers worldwide -- the company still gets plenty of competition from linear TV, cable, and a host of new and existing streaming services. Its narrow focus and ability to avoid the antitrust spotlight may help the company continue to prosper, even as its FAANG peers increasingly attract the attention of regulators.

Daniel Salmon, analyst at BMO Capital Markets, said in a note to clients that Netflix is now the brokerage firm's top technology pick, in light of the growing regulatory risk and worldwide backlash against technology companies. "Netflix, on the other hand, faces little to no regulatory risk, in our view," Salmon wrote, "thus, we are more comfortable with it in the Top Pick slot."

Investor takeaway

It isn't just Warren that's concerned about the growing clout of big tech. India has been working to impose tough new rules on the U.S. tech giants, particularly regarding e-commerce, the use of its citizens' data, and problems of hate speech on social media. The EU has levied billions in fines against Amazon, Google, and Apple for assorted violations, and a number of member states have enacted specific regulations targeting these companies and their monopolistic practices.

While there may be calls to rein in big tech, the issue has been ongoing for years, and there aren't any guarantees that new regulations will be forthcoming, at least not anytime soon. Still, as scrutiny increases and the backlash grows against these tech giants, Netflix is a rare haven in the storm among the FAANG stocks.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Alphabet (A shares), Amazon, Apple, Facebook, and Netflix. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, and Netflix. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Yelp. The Motley Fool has a disclosure policy.