Shareholders Win In Facebook Antitrust Case

On June 28, 2021, Facebook leaders and shareholders got the news they had been waiting for – a federal court in Washington, DC, announced it would dismiss antitrust suits brought by the FTC (Federal Trade Commission) and the Attorneys General of 48 states. 

The suits alleged that Facebook violates antitrust regulations due to its control of a large portion of the social media market. The apparent goal, had the courts found in favor of the FTC and the states, was to force a breakup of Facebook’s social media brands and increase competition in the world of social media. 

Shareholders have been anxiously awaiting the outcome of this litigation, as a forced breakup of the massive organization would negatively impact their investment. When the court decision was announced, Facebook’s share prices gained 4 percent in a matter of hours. 

The increase in stock value took Facebook’s market cap over the $1 trillion mark for the very first time, putting it in the small club of trillion-dollar tech companies that includes Alphabet (GOOG), Amazon (AMZN), Apple (AAPL), and Microsoft (MSFT). 

Does this decision mean the end of antitrust regulators’ interest in Facebook? Is the Facebook antitrust case over for good? What does all of this mean for shareholders?

What Is the Facebook Antitrust Case? 

Facebook critics have a long list of concerns when it comes to the company’s hold over the general population. For example, there have been allegations that Facebook allowed outside companies to collect users’ private information, and Congress investigated the social media giant’s role in permitting misinformation to spread and influence the 2016 Presidential election. 

All of the allegations come down to one basic point: Facebook has too much power – and that power comes from its apparent monopoly in the social media industry. The US prohibits monopolies and monopolistic behavior because it hinders the sort of competition that ensures reasonable prices, high quality, and overall efficiency. 

There are three laws that form the foundation of antitrust regulation in the United States: 

• The Sherman Antitrust Act prohibits separate companies from working together to control prices. 
• The Federal Trade Commission Act created the FTC to enforce antitrust and consumer protection regulations. 
• The Clayton Antitrust Act spells out unethical and unacceptable business practices. 

When it comes to addressing Facebook’s business practices, the challenge for antitrust regulators is defining what exactly the social media market is. The service doesn’t fit into traditional definitions of industries and markets. It is hard to prove that Facebook makes competition impossible if regulators cannot define what Facebook and other social media platforms are competing for. 

Whether Facebook is a monopoly is in dispute, but it’s clear why the question came up. As of the first quarter of 2021, Facebook has 2.85 billion monthly active users. For perspective, the world’s population is roughly 7.9 billion. 

However, the ruling in the FTC’s antitrust case stated that Facebook’s size alone isn’t proof of a monopoly. Facebook might be big, but that doesn’t necessarily mean it is in violation of antitrust regulations. If the FTC wants to pursue this issue, it will have to be much more precise in its arguments. 

Does Facebook Face More Legal Trouble from Antitrust Regulators? 

Despite the recent decision, the antitrust case that the FTC brought against Facebook is not necessarily over for good. The FTC’s case was dismissed because the agency didn’t bring enough evidence to the table – not because there was no merit to the allegations or the agency waited too long to file. 

In its claims, the FTC stated that Facebook and its subsidiaries control 60 percent of the social media market. While that could be true, there wasn’t enough evidence included to prove that statement as fact. If the FTC chooses to pursue the case further, the agency can rework its argument and refile. However, the judge gave the agency just 30 days to do so, which makes the next month critical. 

The good news is that Facebook shouldn’t have to worry about additional legal claims from various states. In the recent ruling, the judge explained that the states waited too long to bring their case. The actions that resulted in the alleged monopoly – the purchase of Instagram in 2012 and the acquisition of WhatsApp in 2014 – went through all of the steps required for approval when the transactions occurred. The judge indicated that it is now too late for states to come back to the courts with concerns. 

However, it isn’t clear whether the same legal reasoning would apply if the FTC filed a similar suit. That possibility remains a risk to Facebook and its shareholders. 

What’s Next for Facebook – and How Will Shareholders Be Impacted? 

Facebook’s position has always been that it doesn’t, in fact, have a monopoly. There are other influential social media platforms that compete for Facebook’s users – for example, Twitter (TWTR), LinkedIn, TikTok, and Pinterest. In response to the recent decision on the Facebook antitrust case, a company spokesperson said this: 

We compete fairly every day to earn people’s time and attention and will continue to deliver great products for the people and businesses that use our services.

As Facebook continues to expand its products and services into areas like virtual and augmented reality, most industry analysts expect the company’s influence to grow. That means more revenue and higher profits – a win for shareholders – but it also means that antitrust regulators will continue their efforts to rein in Facebook, Apple, and other tech giants. 

Facebook won this battle, but the war isn’t over. Congress is looking at changing, updating, and strengthening antitrust regulations in a manner that would consider the special issues associated with tech companies. Whether Facebook will continue to overcome regulatory scrutiny and legal challenges remains to be seen, but for now, shareholders can rest easy. 

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.