While the CEOs of Alphabet, Amazon, Apple and Facebook testified in front of Congress on antitrust grounds last July, those “Big Tech” companies were also ramping up their DC lobby spending in the same quarter. Today, the CEOs of Facebook, Google and Twitter testified in front of Congress over another issue: censorship concerns. We’re sure they will be back, and sooner rather than later
Every quarter we track DC lobby expenditures for major tech companies from the Center for Responsive Politics because we think the data provides useful insight into the industry’s own perceptions of regulatory risk. Here are the latest numbers for Q3 2020:
- Q3 2020: Amazon spent a quarterly record $4.65 million in Q3 2020, up 1.1 pct q/q and 9.7 pct y/y. That topped the company’s prior record of $4.60 million in Q2.
- 2019: The company spent $16.79 million on lobbying last year, the most of any company even outside of tech. That bested its 2018 record of $14.4 million. Amazon spent $13.76 million in the first 3 quarters of 2020, and should easily set a new annual record at its current pace.
- Q3 2020: Facebook spent $4.90 million on lobbying last quarter, up 1.4 pct q/q and 2.7 pct y/y. The quarterly record was $5.26 million in Q1 since the data was first tracked in 2009.
- 2019: The company spent $16.71 million on lobbying last year, exceeding its prior annual record of $12.62 million in 2018. It was the second highest corporate spender on lobbying in 2019, even ahead of Boeing. Facebook spent $14.99 million in Q1 through Q3 2020, and should register a new annual record this year at its current rate.
- Q3 2020: Alphabet spent $2.29 million on lobbying last quarter, up 13.9 pct q/q but down 23.9 pct y/y.
- 2019: The company spent $12.78 million on lobbying in 2019 and was the ninth highest spender on lobbying last year. The company spent a record sum of $21.85 million on lobbying in 2018. The company spent $6.36 million between Q1-Q3 2020.
- Note: The year-over-year pullback in spend is not because of less regulatory pressure, but rather likely due to the company reorganizing its lobbying operations.
- Q3 2020: Apple spent $1.56 million on lobbying last quarter, up 5.4 pct q/q and down 12.4 pct y/y. The company spent a quarterly record $2.16 million in Q1 back to 1998.
- 2019: The company spent a record $7.41 million on lobbying last year and has spent $5.20 million so far this year through Q3.
- Q3 2020: Microsoft spent $1.91 million on lobbying last quarter, down 34.3 pct q/q and 16.2 pct y/y.
- 2019: The company spent $10.26 million on lobbying last year, slightly below its annual record of $10.49 million in 2013. It spent $7.24 million from Q1 through Q3 2020.
- Q3 2020: Twitter spent $430k on lobbying last quarter, up 10.3 pct q/q and 34.4 pct y/y. The record was $440k in Q2 2019.
- 2019: The company spent a record $1.48 million on lobbying last year. It has spent $1.17 million so far this year through Q3.
Here are our investment takeaways from the data:
#1: These six “Big Tech” companies face increasing legislative and regulatory scrutiny, and make up almost a quarter (23.3 pct) of the S&P 500: AAPL (6.7 pct weight in the S&P), MSFT (5.7 pct), AMZN (5 pct), FB (2.4 pct), GOOG/L (3.4 pct) and TWTR (0.14 pct). That means the aggregate weighting of these companies exceeds all S&P 500 sectors except for the technology sector (27.8 pct).
Takeaway: there are many regulatory angles from which “Big Tech” companies are getting criticized, whether it be concerns about antitrust or censorship among a slew of other issues. Their outsized impact on the S&P makes the index more exposed to regulatory risks.
#2: Facebook and Amazon have spent the most on lobbying this year ($28.8 million collectively) versus all other companies, tech or otherwise. Alphabet also made the top ten list of largest lobby spenders in 2019. Although Alphabet pulled back this year due to restructuring its lobbying operations, the company did raise its spend in Q3 by nearly 14 pct q/q which was the highest quarterly increase out of the names we listed. Not only are these three companies some of the top positions in the S&P 500, but also the Communication Services and Consumer Discretionary sectors:
- Facebook and Alphabet account for almost half (47.6 pct) of the Communication Services sector; 23.9 pct for FB and 23.7 pct for GOOG/L.
- Amazon makes up nearly a quarter (23.5 pct) of the Consumer Discretionary sector.
Takeaway: Facebook and Alphabet hold the largest weights in Communication Services, and Amazon represents the biggest exposure in Consumer Discretionary, leaving both sectors vulnerable to mounting legal risks.
#3: The Technology sector has arguably less regulatory risk:
- Apple’s weighting in the sector is 23.9 pct, the highest of any company in the group.
- Microsoft has a 20.6 pct weighting in the sector, the second highest in the index.
Takeaway: unlike Amazon, Facebook, Alphabet, Apple and Twitter, Microsoft was the only name we listed that actually decreased its lobby expenditures in Q3, and by a hefty $1 million. Moreover, although Apple increased its lobby spending in Q3 versus Q2, we still think its data collection and user model leaves it less exposed to regulatory risks compared to AMZN/FB/GOOG.
In sum, that Facebook and Amazon continue to spend the most on lobbying versus any other company – even jet manufacturer Boeing or defense contractor Lockheed Martin – shows they understand their escalating regulatory headwinds. The same goes for Alphabet, Twitter and Apple given that they also increased their lobby expenditures in Q3 from Q2, which is notable given limited face-to-face interactions amid social distancing. We’re still not surprised, however, as they are easy targets on both sides of the aisle during an election year. On the plus side, Americans have relied heavily on their products and services throughout the crisis, and have enough cash to weather this storm better than their smaller competitors.
On the downside, it’s only a matter of when and how tech companies get more regulated. For example, the House Judiciary subcommittee on antitrust released a report earlier this month concluding that Amazon, Apple, Facebook and Google benefit from monopoly power and should be broken up. Whether that comes to fruition remains to be seen, but we continue to believe the technology sector may serve as a more insulated option.