The Tech Stocks Under Pressure in 2022

Big tech is out of favour with investors so far this year, and the European Union is looking to toughen the rules on how they operate, so what do our analysts think?

James Gard 29 March, 2022 | 8:29AM
Facebook Twitter LinkedIn

US dollar notes

We've looked at what the Digital Markets Act will mean for tech companies, their users and investors. Let's take a close look at the companies involved, their current valuations and the Morningstar analyst view.

The Morningstar View

Technology analyst Ali Mogharabi responds to the DMA proposals below. He breaks the issues down into various categories:

Data: He views this as an extension of the General Data Protection Regulation (GDPR) rules brought in by the EU. Platforms will lose some users under the DMA, but gain some too. "While big-techs like Alphabet (Google) and Meta (Facebook and Instagram) can no longer integrate and/or reuse data generated from users of their different products and apply them to their other products, I think their network effect moat sources with their main products will help maintain and/or grow users on the different products from which additional data will continue to be generated, partially offsetting the negative impact of the lack of data integration."

Product rankings: The EU is asking platforms not to rank their own products above those of rivals. Mogharabi doesn't expect this to have a huge impact, "given the continuing high usage and product preference displayed by users over time".

App pre-installation: This is another key pillar of the DMA but one with a long back story. The European Commission fined Google $5 billion in 2018 for pre-installing its own apps on Android phones, but the search giant has been appealing this for four years. A decision is expected this autumn before the DMA kicks in.

"While I’m not sure what EU’s decision will be, the DMA and all the headlines surrounding/supporting it likely may impact it. However, one can also assume that during the last four years Google is prepared and has considered how to move forward if EU decides against it. At the same time, the network effect and overall usage of Google apps have strengthened which could lessen the long-term impact of EU’s possible decision against Google."

Payments: "I think Google’s latest agreement with Spotify indicates that the firm is welcoming such a decision and/or is well-prepared to comply with it. Plus, all of this may help Google in its antitrust battles that have been brewing here in the US."

Digital Services Act: The DSA is also being worked on in tandem with the DMA. "In my opinion (this) is not really necessary as Facebook/Instagram, Twitter, and YouTube continue to improve and cleanup their content."

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

James Gard  is senior editor for Morningstar.co.uk