The valuations of big US tech firms suggest they are expected to experience inexorable growth for years to come. Many value-focused investors have warned during the past 12 months of the dangers of pricing these companies “for perfection”. Given the multiples commanded by their shares (see table) it is not hard to see why there is angst.
| Facebook (US:FB) | Amazon (US:AMZN) | Netflix (US:NFLX) | Google (aka Alphabet, US:GOOGL) |
| Fwd Price-to-Sales | 9.9 | 2.5 | 5.5 | 7.1 |
| Fwd Price-to-Earnings | 26 | 76 | 73 | 22 |
Source: Bloomberg
At the end of 2017 investors may have been given their first proper taste of what an imperfect future may look like for big tech. Any problems for big tech could have significant implications for markets in general, given the dominance of these companies in the key US and world indices, coupled with the widespread adoption of passive index tracking.
The past 12 months have seen growing calls for increased regulation of big tech, and midway through December the Federal Communications Commission (FCC) made its first tangible moves to rein in these companies by voting to abolish net neutrality rules. Among other things, abolishing these rules should pave the way for telecoms companies and ISPs to charge more for the heaviest users of their infrastructure: the big tech firms.
If those campaigning to check the power of big tech get their way, this will be just the first step in a trend towards tighter regulations and the creation of anti-trust laws fit for the digital age. The reasons regulation has become such a hot topic this year are multi-fold, ranging from the implication for suppliers and retailers of the online dominance of Amazon to accusations of tax avoidance. But pertinently, the possible influence of Russia on the 2016 US election seems to have galvanised opinion about the need to act.
