Who stands to benefit from Brexit? Facebook
If you follow the news, you’ll realise that people are still up-in-arms about Brexit. As the fated-date draws closer, and Mrs. May’s deal-making remains unsuccessful, certain sectors of the British population are in panic mode. However, not everyone is negative over Brexit. One company that is likely to benefit greatly from Brexit is Facebook, the social media giant that is one of two dominant forces in the digital advertising industry (the other, of course, being Alphabet’s Google).
Facebook’s share price has appreciated by 22% so far in 2019
Source: Yahoo Finance
Facebook has not had an easy time in the UK media lately. On Monday, the government published findings from its investigation into disinformation and fake news, and – as most people expected – the select committee’s recommendations included the insistence that the UK’s antitrust regulators (the Competition and Markets Authority – CMA) engage in a “deep audit of the advertising market on social media”. The previous week, a governmental review over the sustainability of the news industry made a similar suggestion – and let’s be very clear: by the “advertising market on social media”, these lawmakers mean Facebook.
When it comes to social media ad spending in the UK, it’s all about Facebook
Source: eMarketer & Bloomberg (NOTE: 2019 – 2021 data is based on projections).
The reason we can be so sure that these recommendations are referring to Facebook is very simple: in the UK (as in most developed countries) Facebook is one of two dominant companies in the online advertising space – and Google’s not a social media company. When you look at Facebook’s incredible revenues, and then realise what percentage of them are the fruits of online advertising, it’s quite clear that Facebook more or less is the online advertising industry on social media. For example, last quarter, Facebook’s revenue came in at $16.91 billion. 99% of that revenue comes from digital advertising.
Facebook has earned this position completely fairly: it has billions of users who opt-in to being advertised to, and tell Facebook everything needed to target them with incredible precision. Facebook (like Google) is winning in the online ad space because it offers a brilliant service. But it’s also true that the CMA is undoubtedly the right body to investigate it. After a hard Brexit, however, regulators would almost certainly not have the time. The reason for that is that the CMA would have to start paying attention to lots of mergers that are currently dealt with at the EU level. The CMA will have to prioritise mergers, and it will have scant resources to take on other, new, workloads.
Here’s what CMA chairman, Andrew Tyrie, and CEO, Andrea Coscelli, had to say about a post-Brexit world at the end of December: “If the UK were to leave the EU without a deal, the CMA would take on a great deal of new, complex work from March 2019. It would be obliged by statute to investigate all qualifying mergers and State aid cases. Discretion to carry out other work, such as market studies and further enforcement, would narrow considerably, and it will need to take tough decisions on priorities, at pace, to be flexible to new circumstances.”
That strongly suggests that Facebook will be left relatively free and easy, when it comes to regulation – and from the perspective of investors, that’s a good thing!
Dominion holds Facebook in its Global Trends Ecommerce Fund.
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