Disappointing earnings reports from Big Tech companies may complicate efforts in Congress to pass new restrictions on the digital giants.
Amazon stock fell to its lowest price in more than a decade on news that in the first quarter of the year, the online retailer, cloud computing giant, and digital streaming service saw its slowest growth rate since the dot-com bust of 2001. It also marked a second consecutive quarter of single-digit growth. Amazon estimated future growth rates at between 3% and 7%, missing analysts’ revenue targets by as much as $9.5 billion. Profits are down, too, with the company’s margin dropping to 3.2% from 8.2% the year before.
The disclosures showed that Amazon is not immune from rising inflation, higher fuel and labor costs, and global supply chain failures, the same obstacles confronting many businesses in the United States. But there may be an upside for Amazon. These same challenges may be reducing the more unique threat the online retailer faces from regulators in Washington.
Both the House and the Senate are considering antitrust legislation that would significantly affect how Amazon conducts business on its platform. The sponsor of one of the leading bills, Sen. Amy Klobuchar (D-MN), told a crowd last week that “we have a monopoly problem” and “this is especially true in our digital market, where a handful of powerful corporations stand as virtual gatekeepers to opportunities for so many businesses.”
The traditional understanding of a monopolist includes certain behaviors, including artificially high profits. Amazon’s poor financial showing may make it harder for its foes to claim that the company is able to charge inflated prices without losing market share.
America’s top online retailer isn’t the only tech titan with a weakened market position.
Earlier this year, Facebook owner Meta saw its market capitalization value fall below $600 billion, the threshold for regulation in a leading House antitrust bill.
Ashley Baker, public policy director for the right-leaning group Committee for Justice, told the Washington Examiner, "Quarterly earnings reports and their effects on stock prices once again showed the problem with regulating companies based on metrics such as market capitalization.”
She said setting thresholds for regulation based on companies’ stock value was intended to target particular firms but that things haven’t worked out that way.
“On a practical level, it's often an arbitrary metric, but in this case, it's also bad policy to base these regulations on size alone and not behavior,” she said. “It's also inconsistent with economics since size or market capitalization is not necessarily correlated with market power.”
Netflix, once the “N” the acronym FAANG, used to identify the Big Tech firms Facebook, Amazon, Apple, Netflix, and Google, has been taking a beating over its dismal first-quarter reports. The streaming service had already fallen out of the crosshairs of antitrust regulators, but as recently as five years ago, it was seen by some in the entertainment industry as a monopolist unsurpassable in its still-new market. Competitors such as Disney+, Hulu, HBO Max, and Amazon Prime Video have rendered those concerns largely passe.
Facebook’s shrinking valuation and Amazon's slowing growth could signal a similar fate for the tech behemoths still in the firing line for new and sweeping antitrust regulations proposed on Capitol Hill.
But not everyone sees policy significance in the latest earnings reports.
Chris Pedigo, head of legal and legislative affairs for Digital Content Next, a trade group representing publishers and content creators, told the Washington Examiner, that the quarterly financial results of Google, Amazon, and Facebook "have little bearing on the antitrust lawsuits and proposed legislation, which are seeking to address significant evidence of past abuse and their widely agreed dominance.” He continued, “Ultimately, these companies have suppressed innovation and opportunity for the rest of their respective markets.”
Whether shifts in the market make it harder to pass new regulations on Big Tech remains to be seen, but some politicians think the “tech lash” continues to resonate with voters.
Rep. Ken Buck (R-CO), the ranking member of the House antitrust subcommittee, told a conference crowd that an antitrust bill regulating “self-preferencing” by large technology companies is likely to pass this summer. That bill, the American Choice and Innovation Online Act, would be among the most significant for Amazon of the five antitrust bills being pushed in the House.
Changing market conditions and pending legislation are in a race to see which technology companies will be targeted first, at least until most members of Congress turn their attention to this fall’s midterm elections.