The Facebook share price fell by 7.5% in early June, following media reports of potential antitrust investigations into the mega-cap technology companies (including Alphabet, Amazon and Apple). While we take this threat seriously, our view is that regulators will struggle to prove significant breaches of antitrust law in court. First, it isn’t clear that Facebook has a monopoly, depending on one’s definition of ‘social network’. Other means of communication, such as email, SMS and messaging apps, may also constitute ‘social networks’. Second, a monopoly position isn’t problematic in and of itself, so long as it isn’t used to leverage power over consumers or impede the competitive process. Given that its products are both useful and free, it will be challenging to demonstrate that Facebook’s alleged monopoly position has caused ‘consumer harm’, which is the basis of antitrust law. Should the regulators decide to prosecute, we expect a multi-year legal process with a low probability of a significantly negative outcome. Put differently, we believe the market overreacted.
Despite a poor start, Facebook ended the month up 8.8%. The turnaround catalyst was the announcement of Libra, Facebook’s new cryptocurrency. The digital currency, which will be backed by a basket of major global currencies, is expected to launch in the first half of 2020. The road to broad-based adoption faces many challenges, particularly from regulators, but Facebook’s network effects give it as good a chance as any to succeed. Libra’s possible use cases, from international remittances, peer-to-peer payments and ecommerce, are almost limitless. Our investment thesis does not depend on Libra’s success; rather, this development highlights the latent potential embedded in Facebook’s platforms. As such, we remain as bullish as ever on Facebook’s long-term prospects.