Are big tech companies earning some goodwill as the COVID Crisis forces people to rely on the internet more than ever and as companies like Google and Apple help trace the spread of the virus? Or will their growing dominance and ability to weather the storm versus smaller competitors shine a brighter light on ongoing issues, such as privacy and antitrust concerns?
Each quarter, we review the latest lobbying expenditures for major tech companies from the Center for Responsive Politics because we think the data provides useful insight into big tech’s own perceptions of regulatory risk. Here are the latest numbers for Q1 2020:
- Q1 2020: Amazon spent $4.53 million on lobbying in Q1 2020, up +2% q/q and an all-time high for Q1 since the data was first collected in 2000.
- 2019: The company spent $16.79 million on lobbying last year, the most of any company even outside of tech. That bested its 2018 record of $14.4 million.
- Amazon lobbied on issues related to the federal stimulus bill, fighting price gouging and untrue claims about the virus, etc.
- Q1 2020: Facebook spent $5.26 million on lobbying last quarter, up 19% q/q and a record for Q1 since the data was first tracked in 2009.
- 2019: The company spent $16.71 million on lobbying last year, exceeding its prior annual record of $12.62 million in 2018. It was the second highest spender on lobbying in 2019, even ahead of Boeing.
- Facebook lobbied on issues related to the virus response, as well as encryption, worker visas, content policy, federal privacy, political advertising, etc.
- Q1 2020: Alphabet spent $2.03 million on lobbying last quarter, down 32% q/q.
- 2019: The company spent $12.66 million on lobbying in 2019 and was the ninth highest spender on lobbying last year. The company spent a record sum of $21.8 million on lobbying in 2018.
- Note: The pullback in spend is not because of less regulatory pressure, but rather likely due to the company reorganizing its lobbying operations.
- Q1 2020: Apple spent $2.16 million on lobbying last quarter, up 14% q/q and a Q1 record back to 1998.
- 2019: The company spent a record $7.41 million on lobbying last year.
- Apple lobbied on issues related to the virus response, trade agreements, government requests for data, patent law reform, etc.
- Q1 2020: Microsoft spent $2.42 million on lobbying last quarter, up 0.2% q/q and lower than its Q1 high of $2.79 million in 2019 back to 1998.
- 2019: The company spent $10.26 million on lobbying last year, slightly below its annual record of $10.49 million in 2013.
- Microsoft lobbied on the stimulus bill among other issues.
Here are our investment takeaways from the data:
#1: Facebook spent the most on lobbying in Q1 versus any company, tech or otherwise. Amazon came in fourth on that list. While Alphabet has pulled back on lobbying for restructuring purposes, it still made the top ten list of biggest lobby spenders last year. Here’s why this matters:
- These three companies have a collective weighting of 9.6% in the S&P 500. GOOG/L represents 3.4% of the index, AMZN is 4.1% and FB is 2.1%.
That means the aggregate weighting of all three companies exceeds 6 entire sectors of the S&P: consumer non-cyclical (7%), industrials (7%), energy (3%), utilities (3%), real estate (3%) and basic materials (2%).
- Facebook and Alphabet account for nearly half (43.9%) of the Communication Services sector; 20.6% for FB and 23.3% for GOOG/L.
- Amazon makes up about a quarter (24.4%) of the Consumer Discretionary sector.
Bottom line: all three companies were under investigation by either the FTC or DOJ pre-COVID, leaving investors in the Communication Services and Consumer Discretionary sectors vulnerable to these legal risks. The Senator to watch here is Josh Hawley, who is known for criticizing tech companies over data privacy, antitrust and other issues. For example, last week he wrote a letter to US Attorney General William Barr calling on the Justice Department to open a criminal antitrust investigation into Amazon’s data practices.
Further, in a recent interview with Politico, Senator Hawley said: “We can’t stand by and let Amazon, Facebook, Google, and all the rest gobble up all the innovators in our economy.”
#2: If you want “Big Tech” exposure with arguably less regulatory risk, look to the S&P Technology sector:
- Microsoft has a 22.3% weighting in XLK, the largest of any other company in the index. Its lobby spend peaked back in 2013.
- Apple’s weighting in the sector is 20.0%, the second highest in the index. While the company spent a record sum on lobbying in 2019 and also for last quarter versus any other Q1, we think its data collection and user model leaves it less exposed to regulatory risks compared to AMZN/FB/GOOG.
Final thought: Facebook, Alphabet and Amazon have been go-to resources for users during the pandemic, and they have hoards of cash to get through the rest of the crisis. By contrast, their smaller competitors are going out of business or laying off workers, enabling “Big Tech” companies to grow larger and more powerful post-COVID. We believe the tech sector may serve as a more insulated option in an election year when “Big Tech” is an easy target on both sides of the aisle.