Facebook Wins First Round Against FTC; Maintaining FVE
We continue to believe that antitrust and other regulatory risks are manageable and that Facebook’s share price already reflects these risks.
While we consider the antitrust risks facing Facebook (FB) to be in their early stages, an early positive indication for the firm emerged on June 28 as federal judge James E. Boasberg dismissed not only the lawsuit brought by the Federal Trade Commission but also the one filed by 46 states and the District of Columbia. This is an early victory for Facebook, but we think antitrust risks remain for the firm, including an amended complaint in the FTC case that may be filed again within 30 days and changes to the antitrust laws that could bring about heavy review of the firm and possibly give more power to agencies like the FTC and the Department of Justice. The House Judiciary Committee has already begun this process, recently approving six bills with similar goals. However, we continue to believe that antitrust and other regulatory risks are manageable and that Facebook’s share price already reflects these risks. We are maintaining our $390 fair value estimate, which still represents 10% upside from where the stock closed at after jumping 4% in reaction to the antitrust cases news.
While the FTC claimed that Facebook violated Section 2 of the Sherman Act, which makes it illegal for a firm to monopolize or attempt to monopolize a market, Boasberg ruled that the FTC failed to prove that Facebook dominates or has monopolized social networking (or as stated in the case and in the judge’s opinion, personal social networking services) market.
The FTC also alleged that Facebook policies against interoperability with some competitive apps also violated Section 2 of the Sherman Act. However, based on precedents set by other cases, Boasberg decided that because Facebook’s interoperability policies were implemented a long time ago, the FTC lacks statutory authority to seek an injunction.
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Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.