Facebook, Google, and Apple Face Real Regulatory Risk From the FTC and Themselves

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For months now, regulators, legislators, activists, and presidential candidates have been calling out the toxic impact that big tech platforms are having on privacy, security, and consumer choice. Investors, by contrast, seem largely unperturbed.

Apple
(ticker: AAPL),
Amazon.com
(AMZN),
Microsoft
(MSFT), and
Alphabet
(GOOGL) all have current market valuations above $1 trillion. Next on the list is
Facebook
(FB), at about $600 billion. Tech has won round one of this fight.

But there are signs that regulation is starting to hurt, just as government agencies push for more. The California Consumer Privacy Act, better known as CCPA, has been in effect for less than two months, while tech companies are still grappling with Europe’s own privacy law, GDPR, or General Data Protection Regulation, which kicked in only two years ago.

But it’s actually the self-imposed checks that could be most damaging to tech’s bottom line in the months to come.

Google has begun to limit cookies—little bits of code that track online consumer behavior—in its Chrome browser. Meanwhile, Apple has added a feature in its iPhone software that alerts consumers when an app tracks their location.

On Facebook’s recent earnings call, CFO Dave Wehner said the company is starting to feel the effects of restrictions on both ad targeting and measurement, but “the majority of that impact lies in front of us.” That’s a worrisome line that doesn’t seem to have been fully digested by investors. (Facebook is down 4% since its late January earnings report.)

Facebook employs “signals from user activity on third-party websites and services,” Wehner said, to deliver “relevant and effective ads to our users.” He said that both GDPR and CCPA will affect Facebook’s ability to use those signals, and he cautioned that Apple and Google’s product changes could limit it even more. Taken together, those factors curtail “our ability to target and measure the effectiveness of ads on our platform, and that can negatively impact our advertising revenue growth,” he added.

Last week, Pivotal Research analyst Michael Levine downgraded Facebook to Sell from Hold, highlighting a coming “cookie-pocalypse.” He echoed some of Facebook’s commentary—that the Chrome browser limits and the added transparency from Apple could make ads less effective, which would logically lead to lower ad rates and reduced ad spending, in particular for direct-to-consumer advertisers. “When this cracks, it is going to crack hard,” Levine wrote.

Facebook has been “operating on the efficient frontier of behavioral targeting, which creates the…