Tech Stocks & Data Regulation: What Nobody is Talking About

Tech Stocks & Data Regulation: What Nobody is Talking About
This Week’s Highlights:

– Facebook’s founder and CEO, appeared before the Senate and House on April 10th and 11th respectively. User data as a product generates revenue for numerous technology and social media firms. It’s why websites, such as Facebook, Twitter, and LinkedIn, don’t charge users.

– But Congress knows the time for self-regulation is coming to an end and is starting to address the issue. Currently there are three competing proposals: (1) Honest Ads Act, (2) BROWSER Act, and (3) CONSENT Act.

– In addition, one proposal is for the creation of a Digital Consumer Protection Agency, much like the Consumer Financial Protection Bureau. The proposed agency could oversee the collection of consumer data, how it’s shared, and how it’s used. Each of these bills and the proposed government agency could disrupt the business models of companies monetizing user data.

Below are the companies we’re watching

– Social Media: Social media firms may be the most well known and impacted firms under increased data regulation. Facebook (FB), Twitter (TWTR), and Alphabet (GOOG) are U.S. firms. Foreign firms include Baidu (BIDU) and Weibo (WB).

– Data Brokers & Aggregators: A lesser known group of companies serve as data brokers & aggregators. One company, ACXIOM (ACXM), compiles user information from across the web and combines it to build a master profile for each user. ACXM was down 32%¹ in the days after FB ended its partnership with third-party data brokers. CoreLogic (CLGX) offers clients a database of property-level information, such as mortgages and liens, evictions, buildings and replacement costs, etc., for the global real estate market.

– Credit Reporting: Credit reporting companies, such as Equifax (EFX) and TransUnion (TRU), also collect vast amounts of data. Equifax experienced a data breach in 2016, resulting in congressional hearings and an increased focus on data usage.

– Investors typically value each of the above companies based on future earnings. Any policy movement regulating data use or increasing compliance costs may mean lower revenue and decreased margins, resulting in lower stock prices.

– Committee members in both the House and Senate acknowledged the low likelihood of regulation this year. But that doesn’t mean the risk of data regulation is gone. It may occur over multiple years, but we think data regulation is a negative leading indicator for social media and data stocks.

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Tech Stocks & Data Regulation: What Nobody is Talking About