The Takeaway:

Today’s hearings in the Senate Intelligence Committee and the House Energy and Commerce Committee will raise uncomfortable questions around election meddling and issues stemming from the prevalence of fake accounts across platforms run by Facebook (FB), Google (GOOGL), and Twitter (TWTR). But, to the extent that investors are watching these hearings, we suspect it will be to monitor overall sentiment toward the companies. We recognize that ultimately what investors fear most is a scenario where scrutiny of the industry – stemming from issues discussed at hearings today as well as the Cambridge Analytica / Facebook scandal and other privacy issues across multiple companies’ platforms – could over time compel the U.S. government to take antitrust enforcement actions against the aforementioned big tech companies and/or others such as Amazon (AMZN). We have been monitoring this sentiment over the past six months since the Cambridge Analytica scandal broke. Based on a series of events that unfolded over the summer, we now put odds at 25% that states and/or the federal government will take antitrust enforcement actions against large technology firms at some point over the next 12-18 months. This report explores what those actions could be and the series of events we think are crucial to monitor through year-end 2018 that will enhance or degrade this view.