Wednesday is an important day for “Big Tech”: the CEOs of Amazon, Apple, Facebook and Google will speak in front of the House antitrust subcommittee as part of its yearlong investigation into anti-competitive practices. It’s both the first joint congressional testimony by the chief executives from those four tech companies and the first appearance by Jeff Bezos.
“Big Tech” is not new to regulatory scrutiny; every quarter we track lobby expenditures for major tech companies from the Center for Responsive Politics because we think the data provides useful insight into the industry’s own perceptions of regulatory risk. Here are the latest numbers for Q2 2020:
- Q2 2020: Amazon spent a quarterly record $4.66 million in Q2 2020, up 12.3% y/y. That topped the company’s prior record of $4.51 million in Q1.
- 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 should set a new annual record (+$18 million) in 2020 at its current spending pace.
- Q2 2020: Facebook spent $4.83 million on lobbying last quarter, up 17.5% y/y. The quarterly record was $5.26 million in 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 corporate spender on lobbying in 2019, even ahead of Boeing. Facebook should register a new annual record (+$20 million) this year at its current rate.
- Q2 2020: Alphabet spent $2.01 million on lobbying last quarter, down 37% y/y.
- 2019: The company spent $12.8 million on lobbying in 2019 and was the ninth highest spender on lobbying last year. The company spent a record sum of $21.9 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.
- Q2 2020: Apple spent $1.48 million on lobbying last quarter, down 18% y/y. The company spent a quarterly record $2.16 million in Q1 back to 1998.
- 2019: The company spent a record $7.41 million on lobbying last year.
- Q2 2020: Microsoft spent $2.91 million on lobbying last quarter, up 5.1% y/y.
- 2019: The company spent $10.26 million on lobbying last year, slightly below its annual record of $10.49 million in 2013. At its current pace, Microsoft could set a new annual record (+$10.7 million) this year.
Here are our investment takeaways from the data:
#1: Almost a fifth (16%) of the S&P 500 will be testifying in front of Congress over antitrust concerns on Wednesday: AMZN (4.7% weight in the S&P 500), AAPL (5.7%), FB (2.1%) and GOOG/L (3.4%). That means the aggregate weighting of these 4 companies exceeds all S&P 500 sectors except for Technology itself (26%).
Bottom line: tech names’ outsized impact on the S&P may benefit the index as they continue to rally from enabling a post-COVID world, but the upcoming congressional hearing is an important reminder that they also bring notable regulatory risk.
#2: Amazon and Facebook have spent the most on lobbying this year ($19.3 million collectively) versus other companies, tech or otherwise. While Alphabet has dropped its lobby spend of late while it restructures its efforts, it still made the top ten list of largest lobby spenders last year. Not only are they some of the top positions in the S&P 500, but also the Communication Services and Consumer Discretionary sectors:
- Facebook and Alphabet account for almost half (44.5%) of the Communication Services sector; 21.1% for FB and 23.4% for GOOG/L.
- Amazon makes up nearly a quarter (24.0%) of the Consumer Discretionary sector.
Bottom line: Facebook and Alphabet hold the largest weights in Communication Services, and Amazon represents the biggest exposure in Consumer Discretionary, leaving both sectors vulnerable to these legal risks.
#3: The Technology sector has arguably less regulatory risk:
- Microsoft has a 21.6% weighting in XLK, the largest of any other company in the index.
- Apple’s weighting in the sector is 21.3%, the second highest in the index.
Bottom line: while Microsoft has been increasing its lobby spend, it is the one big tech company NOT in the hot seat on Wednesday. Moreover, although Apple’s pullback in lobby spending in Q2 versus Q1 could be COVID-related, we think its data collection and user model leaves it less exposed to regulatory risks compared to AMZN/FB/GOOG even though Tim Cook will still testify.
In sum, that Amazon spent a record amount on lobbying last quarter despite the pandemic shows the company understands its mounting regulatory headwinds. The same goes for Facebook: even though its quarterly record for lobby expenditures occurred in Q1, it still spent more than Amazon on said efforts in Q2. On the plus side, Americans have relied heavily on the products and services of all the companies testifying on Wednesday. They also have enough cash to get through this crisis unlike their smaller competitors. Even still, “Big Tech” names are an easy target for both sides of the aisle during an election year, so the technology sector may serve as a more insulated option.