Tuesday, Jun 29th 2021

Facebook wins in court, underscoring our thesis

Update

Facebook landed two big legal wins on Monday, sending FB’s valuation soaring over the $1 trillion mark. A US District Court dismissed a complaint filed last year by the FTC, as part of the federal government’s anti-trust case to unwind Facebook’s acquisitions of Instagram and WhatsApp. A related case by a group of state attorney generals was also dismissed, as part of the ruling.

Judge James Boasberg write, “The FTC has failed to plead enough facts to plausibly establish a necessary element of all of its Section 2 claims—namely, that Facebook has monopoly power in the market for Personal Social Networking (PSN) Services.”

While the ruling does allow the FTC to revise its case (by July 29th), the announcement alleviates some of the regulatory risk associated with investing in Facebook. The positive sentiment drove Facebook above a $1 trillion market cap for the first time.

We have long held the view that anti-trust risk has been overstated due to the difficulty of proving monopolistic power for "aggregator" businesses that provide free online services. Additionally, we believe the U.S. government wants U.S. tech companies to dominate on the international stage. Given part of the international power of Big Tech players like Facebook sits in their ability to hold a large user base across many applications, there’s an incentive for the government to focus its regulatory efforts in other directions.

Stepping back, potential regulatory headwinds facing mega-cap technology companies picked up last week, as the House Judiciary Committee approved six different bills centered around anti-trust reform. While we will continue to closely monitor the legislative landscape, we believe the forward risk-adjusted returns for Facebook and related Titan holdings remain attractive long-term. We will be maintaining our current position in Facebook given the positive news.

As of this writing, FB was a portfolio holding of Titan. This security may cease to be a portfolio holding at some point in the future.
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