WWD : After 1.28B Euro Deal, What’s Next for Permira and Golden Goose?

After 1.28B Euro Deal, What’s Next for Permira and Golden Goose?
Golden Goose sees more growth ahead, with some projections that it could be a 500-million-euro brand.

MILAN — Golden Goose and its new owner Permira have big plans ahead.

The private equity fund on Wednesday succeeded in buying Golden Goose from the Carlyle Europe Buyout fund, as first reported by WWD. Although terms of the transaction were not made public, market sources peg the price tag at 1.28 billion euros.

Now the work begins to continue to grow Golden Goose — which Marco De Benedetti, managing director and co-head of Carlyle’s European Buyout Group, said “has the potential to become a 500 million euro company; it has interesting prospects.”

An upbeat chief executive officer Silvio Campara said “this was only the beginning“ for Golden Goose and that there is “still so much to do.”

Campara will continue to lead the company and touted continuity, as Permira is “perfectly in sync, has experience in fashion, is not improvising and has an international mind-set while also rooted in Italian culture.”

The closing is expected in about a month, he said.

The goal is to continue to grow steadily at a 25 percent clip, opening 25 stores a year. Last year the company shifted into a direct-to-consumer business, which now accounts for 53 percent of sales, observed Campara.

Italy represents 20 percent of the business. The other markets are balanced, with the U.S. accounting for 35 percent, as much as Europe, and Asia representing 30 percent.

Asked about the coronavirus crisis, which did not stop the deal, Campara expressed his solidarity with the Chinese community and said that China accounts for 10 percent of sales. He noted that Golden Goose relies on local customers around the world, so that the virus has so far had a lesser impact than for some competitors, also because Golden Goose products are made in Italy and not affected by problems at the level of the supply chain.

Campara also trumpeted the current management’s reinvestment in the company, including his own, as he remains one of the main shareholders. “This is an Italian miracle. It’s a company made up of people, a collective of creative talents and managers, which guarantees continuity and success,” he trumpeted. “Let’s celebrate ourselves, this is all five times unique, in terms of the size of the deal — these multiple haven’t been seen in a while here, in terms of the affection of the team; unique in terms of the product and how it is crafted, and for the passion and love, all aimed at bringing forward the Golden Goose story.”

Francesco Pascalizi, partner at Permira, said, “Golden Goose is a ‘next-gen’ luxury brand and can be considered the ‘creator’ of the high-end sneakers category. Over recent years the company has experienced outstanding growth, driven by its excellent management team. We look forward to leveraging our experience to support Golden Goose through the next phase of development.”

While admitting the deal was successful on the financial front, De Benedetti underscored in an interview with WWD the importance of leaving a company in better shape than it was before. “I have always considered that we can have a role in accompanying the transformation of a company. I am happy that we have contributed to developing Golden Goose, choosing the right management, the strategies, expanding its retail distribution.”

Asked about the timing of the turnaround and sale, which was quick considering that Carlyle bought the brand in 2017, De Benedetti said that the decision was reached at the end of last year, since “the goals we had set had been reached. Our role was finished. We made a selection of a group of potential buyers that would understand the sector and appreciate the value of the company and that had the skills to bring the company forward. Permira has these characteristics. And they were the most determined and made the most competitive offer.”

Carlyle acquired the Marghera, Italy-based company in 2017 from Ergon Capital Partners and Zignago Holding SpA, controlled by the Marzotto family, as well as the company’s founders and management team.

Ergon acquired a majority stake in Golden Goose in 2015. Style Capital held a minority stake in the Italian brand, which was founded by creative directors Alessandro Gallo and Francesca Rinaldo.

Revenues almost doubled since the acquisition of Golden Goose by Carlyle in 2017, from 100 million euros in the 2016 fiscal year. When it was acquired, Golden Goose was valued at 420 million euros, with EBITDA of 32 million euros.

Golden Goose achieved much of its success with the Superstar sneaker, which offers 400 variations in one year. The brand prides itself on keeping its products handmade in Italy and offers customization through the Lab project.

Carlyle lists successful investments in brands including Moncler, Twinset and Hunkmöller.

Permira bought Dr. Martens in a 300-million-pound deal in 2014, and is not new to the fashion fray, as a former investor in Valentino and Hugo Boss.

As reported last month, market sources told WWD that negotiations over Golden Goose had accelerated and a sale could have been finalized as early as mid-February. Two private equity funds — Permira and Advent — were said to be neck-and-neck in securing the deal to buy the Italian brand from the owner, the Carlyle Europe Buyout fund.

As reported in November, sources told WWD that a “teaser dossier” had been presented to potential bidders and that seven to eight companies had shown some interest. These ranged from PVH Corp. and Permira to Advent and Ralph Lauren Corp. Tapestry Inc., parent of Coach, Kate Spade and Stuart Weitzman, was also said to have expressed an interest in Golden Goose.

The deal implies Permira paid more than 14 times the company’s expected 2019 earnings before interest, taxes and depreciation.

Figures for 2019 have not been released yet, but revenues last year are expected to reach $300 million, up from $205 million in 2018. EBITDA is forecast to reach around $90 million in 2019, an increase from $51 million the previous year. According to a source, the plan is to reach sales of $510 million and EBITDA of around $160 million in 2022.

Sneakers are Golden Goose’s core business and account for around 80 percent of sales, but Golden Goose has been expanding its accessories and ready-to-wear. The women’s division accounts for 70 percent of sales. The company has also been boosting its proprietary online channel, which is expected to account for 10 to 15 percent of sales in two or three years, and building a network of stores. Since March 2017, the company has opened 50 stores, reaching a total of 58 last year, and the brand is available at around 900 wholesale accounts. Wholesale represents 60 percent of revenues.

The brand is helmed by Campara and the role of chairman is held by Patrizio di Marco. The collections are designed by an in-house team, but, as reported, former Gucci creative director Frida Giannini is said to have joined Golden Goose to work on the brand’s accessories and apparel. This is an encore for Giannini and her husband di Marco, as the couple worked together at Gucci, when the executive was that brand’s chairman and ceo before Marco Bizzarri.

Business of Fashion : All Eyes on Prada in Milan

All Eyes on Prada in Milan
This week, everyone will be talking about Prada rumours in Milan, the one-year anniversary of Karl Lagerfeld's death and a potential sale of Victoria's Secret. Get your BoF Professional Cheat Sheet.

  • Milan Fashion Week runs Feb. 19-24; highlights include Moncler and Gucci on Feb. 19, Prada and Fendi on Feb. 20, Ferragamo and Bottega Veneta on Feb. 22
  • Prada has denied rumours it is seeking a buyer, while declining to comment on talk that Raf Simons will join the brand in some capacity
  • Prada shares are down about 30 percent over the last five years, while Gucci-owner Kering's stock is up 257 percent over the same period
Though Prada as a brand remains a household name from Shanghai to Sheboygan, its owner has struggled to turn that notoriety into a prosperous global business. Where Louis Vuitton and Gucci have soared, Prada came late to the streetwear trend and has suffered embarrassing missteps, leading to surreal headlines earlier this month when Miuccia Prada herself agreed to attend cultural sensitivity training. Hiring Simons would certainly quiet questions about the brand's succession plan, at least in the short term. It's unlikely those rumours will be confirmed or put to rest this week, though it's another storyline to follow in what is, between Gucci's 180-degree aesthetic turn and Bottega Veneta's creative and commercial resurgence, already a pretty plot-heavy few days.

Barrons : Tesla Stock Just Had the Ride of Its Life. Why Bitcoin Could Be Next.

Bitcoin has tiptoed back above $10,000, from $4,000 a year ago, and I have two questions. The first is why it isn’t yet hitting new highs above $20,000. The second is why it isn’t worth zero.

Last spring, I wrote that conditions are perfect for a flight to nonsense, with growth scarce and the Federal Reserve again cutting interest rates, and that Bitcoin would be the bellwether. U.S. stock indexes have shot higher since then, which I wouldn’t call a bubble or meltup just yet. The market is expensive relative to revenues, but reasonable compared with free cash flow, especially to investors who expect interest rates to remain low for longer.

There are signs of excess, however. Virgin Galactic Holdings (ticker: SPCE) has doubled in price, to $26, since October. That means the space-travel start-up is worth $5 billion, or about 1,000 times revenue.

Tesla stock (TSLA) has jumped 260% in six months, driving the company this past week to propose another stock offering, right after founder Elon Musk said such a move wouldn’t make sense. Junk-bond yields, meanwhile, are at historic lows.

And the filling-to-wafer ratio of sandwich cookies is at record levels, thanks to a new offering from Oreo called The Most Stuf. I’m not saying that’s part of the same trend, but I’m not ruling it out, either.

The other thing that ought to be sending Bitcoin bonkers is that “mining” new coins using computing power is about to become half as rewarding. That automatically happens every four years or so. Some Bitcoin watchers call it the halving, and some call it the halvening. I like the second one because it sounds a little more Dungeons & Dragons, and I suspect that cryptocurrencies are really an elaborate role-playing game, with metrics like “hash rate” and “attack cost” taking the place of dice, hit points, and wizard spells.

In the past, halvenings have come with new highenings. I first wrote about Bitcoin in 2011 for SmartMoney.com (which was absorbed into MarketWatch during a later media halvening). The price was $10.50 at the time, which might not sound like much, but that was up from half a penny in a year, making Bitcoin the world’s top-gaining currency by far. There was a halvening in 2012, and by late 2013, Bitcoin hit $400.

The next halvening came in 2016, and was followed by a price gain of more than 2,000% over 18 months, with Bitcoin peaking at just under $20,000 near the end of 2017.

We’re due for another halvening around May. Assuming cryptocurrency traders are forward-looking, backward-testing go-getters, why hasn’t Bitcoin gone full Tesla?

Maybe it’s the competition. Ethereum and other cryptocurrencies have been gaining faster than Bitcoin this year. Or maybe it’s just early. Tom Lee, head of research at Fundstrat Global Advisors, which sells Bitcoin analysis to money managers, says he expects Bitcoin to outperform the S&P 500 index for the rest of the year and to hit $40,000 before the Dow Jones Industrial Average hits 40,000 points. In other words, Bitcoin will gain about 285% before the Dow rises 35%.

That’s the bull case. The bear case comes from Minneapolis Federal Reserve president and total Bitcoin buzz kill Neel Kashkari. Speaking at an event in Montana this past week, he was asked whether a Treasury bond or Bitcoin would make a better gift, and he picked the T-bond.

“Maybe five years from now or 10 years from now or 20 years from now something useful will emerge from this, but so far, all that’s emerging is burning garbage,” Kashkari said of cryptocurrencies.

I’m not sure what the appropriate allocation to burning garbage is for a prudent investor. I predict the whole thing will end in tears, but I’ll hedge by not specifying whether the tears will come from joy, anguish, or allergies.

Put me on record for Oreos, however. Creme ratios will crash from Most Stuf straight through support levels at Mega Stuf, before finding a bid at Double Stuf.

Barrons : Some of the Biggest Marijuana Companies Could Burn Through Cash in Mon

Some of the biggest cannabis companies in the U.S. and Canada could burn through their cash balances in a matter of months unless they’re able to raise funds or cut spending, according to research from the boutique investment banking firm Ello Capital.

As pot stocks plunged over the past year, big spenders like Canopy Growth (ticker: CGC), Aurora Cannabis (ACB), and Tilray (TLRY) have found that capital markets have yanked the welcome mat and forced the pot producers to cut costs. “The cannabis industry is currently entering a new period where companies are focusing on corporate governance and operational efficiency,” says Ello chief executive Hershel Gerson.

Few analysts foresaw the industry’s cash crunch. Some thought that Aurora Cannabis was even on the road to positive cash flow in 2019. But Aurora stock has fallen nearly 80% from one year ago and last week it announced drastic economies. The ETFMG Alternative Harvest ETF (MJ), an exchange-traded fund with exposure to the pot business, has shed half its value in the past 52 weeks. In 2018 and 2019 cover stories, Barron’s wrote that Canadian and U.S. pot stocks looked overpriced.

Read Next: There’s a World of Dividend Stocks Out There. And They Pay More Than U.S. Companies.

Using the latest-reported financials of 20 pot producers, Ello’s Gerson estimates that companies like Aurora and Tilray had less than 6 months of cash based on their capital spending and negative operating cash flows. Gerson’s firm helps cannabis companies raise capital, but isn’t engaged with any of the 20 public companies in his liquidity analysis and says that his firm has no trading positions in their stocks.

Gerson is more optimistic on some of the industry players. “We’re still bullish on the industry and think there are some great operations out there,” he says. “We feel positive about the industry’s long term fundamentals.”

Cannabis companies have scrambled to raise cash in recent months through stock placements or by selling and leasing back their properties. Last week, Aurora told investors that it has raised money through “at-the-market” stock sales and bank loans. To save money, it is cutting capital spending and its headquarters payroll, starting with the retirement of founder and chief executive Terry Booth.

An Aurora representative pointed to that financial update, when queried by Barron’s. Aurora told investors last week that it promised bankers that it will to turn cash flow positive by the September 2020 quarter.

“Nobody knows when that’s going to happen,” says Gerson, talking about Aurora’s spending cuts. He figures that Aurora’s latest adjustments left it with about $117 million in cash and a monthly burn rate of around $50 million. That’s 2.3 months of liquidity, Gerson says.

The analysts at Ello aren’t the only ones worried about Aurora’s balance sheet. On Monday, Gordon Johnson of GLJ Research issued his own analysis of Aurora’s staying power and concluded that it will burn through its liquidity in just over 7 months. Johnson rates Aurora a Sell.

Ello’s Gerson figures that Tilray had just under 4 months of cash, as of its latest reports. He counts $100 million in cash and a monthly burn rate of about $27 million. A Tilray spokesperson referred Barron’s to comments from Tilray’s third-quarter earnings call, where the company said it expects to raise senior debt to bridge its liquidity until Tilray reaches positive operating cash flow.

“Analyst estimates have our quarterly revenue doubling this year on top of our 4-times growth in Q3,” the Tilray spokesperson added. “Our growth is expected from Canadian adult-use, international medical and U.S. hemp products. We can provide an update on our cash balance when we report earnings in March.”

The most extreme cash crunch, in Ello’s estimation, is at Green Growth Brands (GGBXF)—a company that sells nonintoxicating CBD beauty products in malls. With over $20 million in negative cash flow and capital spending in its last-reported quarter, and only about $7 million in cash at the time, Ello figures that Green Growth had about one month of cash remaining. Over the last year, the company’s stock has sunk from US$4.90 to 22 cents.

A Green Growth representative said in an email: “The entire sector is experiencing a considerable cash crunch. Like many of our peers, we are closely monitoring capital and are working with key investors to secure additional funding.”

Another small producer, 4Front Ventures (FFNTF), could also be running low of cash, by Ello’s estimate. With $6 million in cash and a $5 million-plus monthly burn rate—at last report—Ello thinks 4Front has just over one month of cash. 4Front did not provide comment regarding its cash burn rate.

Ello’s analysis counts the cash companies used in their capital spending, but not what they spent on acquisitions. The analysis does not count the marketable securities that a few companies also showed on their balance sheets. Gerson says that the value of those securities can fluctuate. Canopy is a company where that last choice might matter. Ello figured that Canopy’s $830 million in cash would last just under 8 months at its last-reported cash burn rate.

But Canopy also had $1.2 billion in marketable securities. “Such marketable securities have a term of less than one year and can convert into cash in the time frame of this analysis,” said Canopy spokesman Jordan Sinclair in an email.

“Marketable securities are primarily investments in U.S. and Canadian government-issued securities,” he said. “As such, it is our position that the analysis of ‘available liquidity’ for Canopy Growth should be based on the total cash, cash equivalents and marketable securities of 2.7 [billion Canadian dollars].”

Counting Canopy’s securities holdings as cash would give it about 20 months of liquidity, Barron’s calculates, at the burn rate used by Ello. And Canopy has the backing of its controlling shareholder Constellation Brands (STZ), a U.S. alcoholic beverage company.

Among the best-funded companies in the industry is Cronos Group (CRON). By refraining from building big production facilities, Cronos has held on to much of the cash it got from its big backer Altria Group (MO). This “asset light” philosophy has left Cronos with $1.1 billion in cash, which should last it for years, by Ello’s estimate of Cronos’s burn rate.

Another financially-prudent player has been Green Thumb Industries (GTBIF), which has over one year of cash, according to the Ello analysis. Along with Trulieve Cannabis (TCNNF), Green Thumb was the only leading U.S.-based operator to show positive cash flow in its last-reported quarter.

“We have been managing the business with a focus on profitability,” says Green Thumb’s head of capital markets, Andy Grossman. “The key going forward is generating positive cash flow. Green Thumb will stand on its own, without the need for additional capital, but remains opportunistic with regard to the capital markets.”

Representatives from The Green Organic Dutchman Holdings (TGOD), MedMen Enterprises (MMNFF), Hexo (HEXO), Harvest Health & Recreation (HRVSF), iAnthus Capital Holdings (ITHUF), and Columbia Care (CCHWF) didn’t return requests for comment in time for publication.

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: Cover story says a number of Berkshire Hathaway’s issues could be resolved in a post-Buffett era; Increased regulation of the tech industry is starting to hurt
* Cover story: When Warren Buffett turns 90 years old in August, it would be only natural for Berkshire Hathaway shareholders to worry about the future of the extraordinary company he built, but those who fear for the future of a Buffett-less Berkshire may be shortchanging the company and its shares; A number of issues could be resolved in a post-Buffett era—many investors think new leadership could break up the conglomerate to unlock value, or at least be more amenable to the idea, which Buffett opposes.
* Tech Trader: +/- AAPL, AMZN, FB, GOOGL, MSFT: So far investors seem largely unperturbed by criticism of big tech from regulators, legislators, activists, and presidential candidates, but there are signs regulation is starting to hurt—just as governmental agencies push for more. Trader: Lori Calvasina, head of US equity strategy at RBC Capital Markets, expects 2020 to be a turbulent year—but there’s just as much risk to selling and watching stocks continue to run as there is in holding on too long; +/- CGC, ACB, TLRY: Some of the biggest cannabis companies in the US and Canada could burn through their cash balances in a matter of months unless they raise funds or cut spending, according to research from Ello Capital.
* Profile: Daniel Boston and Kabir Goyal, co-managers of the Brown Capital Management International Small Company fund, focus on companies with strong, sustainable revenue growth; they define company size in terms of revenue as opposed to market capitalization, and the fund invests only in companies with revenues of less than $500M (top 10 holdings: Descartes Systems Group, M3, CYBR, Evotec, Kinaxis, Abcam, Dechra Pharmaceuticals, SimCorp, Albioma, REA Group).
* Features: 1) +/- Berkshire Hathaway: Writer Andrew Bary looks back at his coverage of the company for Barron’s over the years, and says that with chief Warren Buffett turning 90 this year, the next few years promise to be fascinating, and could well include a long-awaited CEO succession; 2) + COG, LNG: Absent a ban on fracking in the US, which multiple Democratic presidential candidates have proposed, excess natural gas supply will probably depress prices for years, making most of the industry’s stocks poor investments, with the exception of Cabot and Cheniere; 3) Barron’s list of the Best Fund Families for 2019 is based purely on the performance of their actively managed funds, and is topped by MFS Investment Management, Virtus Investment Partners, DWS Group, Columbia Threadneedle Investments, and Principal Global Investors; 4) Fallout from the coronavirus outbreak won’t be limited to companies heavily reliant on China for sales, or those that operate facilities in Wuhan—disruptions could ripple through an array of industries and hurt sales and earnings, possibly throughout the year, with consumer goods, industrials, and tech likely to take a hit.
* European Trader: Positive on LYG: Investors looking to bet on a post-Brexit boost to Britain’s economy should consider buying shares in the UK–based financial powerhouse, whose stock is cheap, is highly geared to the British economy, and offers a hefty dividend.
* Emerging Markets: Communist China will still be here when the coronavirus peters out, its economy will still be gaining ground on the US in gross output and advanced technology, and president Xi Jinping will still be in power—the notion that Beijing faces a “Chernobyl moment that could alter its destiny or leadership looks considerably exaggerated.”
* Commodities: “Silver has fared better than some of its metal peers against the backdrop of a disease-threatened global economy, in part because of its dual role as both a precious and industrial metal.”
* Streetwise: “Bitcoin has tiptoed back above $10,000, from $4,000 a year ago, and I have two questions,” says columnist Jack Hough. “The first is why it isn’t yet hitting new highs above $20,000. The second is why it isn’t worth zero.”

FT : Electric vehicles: battery overload

Electric vehicles: battery overload
To avoid old batteries ending up in landfill sites, recycling on a huge scale will be necessary

The scramble to electrify the world’s vehicles is storing up a problem that could give advocates a nasty shock. Safely dealing with a looming glut of used EV batteries will require a drastic expansion of current recycling facilities. 

The lithium-ion batteries employed in today’s electric vehicles are expected to have a useful life of up to a decade. After that, the batteries either need to be repurposed for alternative use or recycled. By 2026 global recycling needs could outstrip existing capacity by almost 10 times.

Finding an alternative use is the first choice; batteries can be used in homes to store power generated from solar panels, for example. Even so that might extend their lifespan by just five years. To avoid batteries ending up in landfill sites, recycling will be necessary.



A conservative eight-year estimate of battery life could mean 1.1m batteries or 274,000 tonnes of material — metals such as nickel and cobalt — globally in need of recycling or re-use by 2025. That could rise to more than 3m units or 800,000 tonnes in 2026. This would dwarf current recycling capacity, estimated at 85,000 tonnes per year evenly split between Europe and China.

A new 20,000-tonne recycling facility could cost up to $200m and take at least five years to design and build, analysts estimate. Groups such as Umicore of Belgium, with existing capacity of 7,500 tonnes, should begin expanding in the next few years. Safe disposal of waste is an necessary speed bump to a hopeful, rapid take-up of electric vehicles.

FT : US warns Europe against embracing China’s 5G technology

US warns Europe against embracing China’s 5G technology
Western allies vent tension at Munich security conference

Top US officials threatened and cajoled European allies as cracks in the western alliance were laid bare at the Munich transatlantic security conference.

Mark Esper, US defence secretary, warned that a European embrace of Chinese 5G mobile communications technology could compromise the Nato military pact.

Mike Pompeo, secretary of state, urged an end to European talk of political clashes with Washington, insisting “the west is winning” in a world of great power competition. 

The twin broadsides highlight how the gathering of top politicians, military officers and spies in Munich set up more than 50 years ago to consolidate the Cold War era transatlantic alliance has become a place to vent its modern-day tension. 

Mr Esper urged international partners to “wake up” to the “nefarious strategy” being pursued by Beijing to undermine the “international rules-based order”, including its drive to control the potentially revolutionary 5G technology. 

“If we don’t understand the threat and we don’t do something about it, at the end of the day it could compromise what is the most successful military alliance in history — Nato,” he said. 

Mr Esper’s latest warning on the impact of 5G on Nato opens up a new front in the war of words between Washington and Europe on the dangers posed by Chinese involvement in infrastructure, from telecoms to transport and energy. 

The US — which has sent a bipartisan delegation of over 40 congressional members to the security conference this year — is emphasising that it will keep up the pressure, despite European leaders taking a more nuanced view of the balance between security threat and economic gain. 

The UK defied White House advice by allowing Huawei into its 5G networks last month, but the message in Munich is that the failure to take the perceived risks seriously will have consequences. 

British officials note that Washington has dialled down its threats on the Huawei decision affecting intelligence-sharing with London, but fear this disagreement could have an impact on a post-Brexit US trade deal. 

China’s foreign minister Wang Yi hit back at US criticisms, denouncing them as smears.

“All these accusations against China are lies, not based on facts,” Mr Wang said. “But if we replace the subject of the lie from China to America, maybe those lies become facts.”

The Chinese foreign minister suggested that US attempts to block Chinese equipment and infrastructure being used within Europe were a means of preventing China’s “redevelopment and rejuvenation”.

“We hope the US superpower in the world will not give up its confidence or its sense of reason,” he said.

Mr Esper’s remarks came less than 24 hours after Nancy Pelosi, Democrat speaker of the US House of Representatives, warned European countries they will “choose autocracy over democracy” if they let China’s Huawei take part in rolling out 5G technology. Jens Stoltenberg, Nato secretary-general, warned on Saturday that countries shouldn’t be tempted to trade short-term economic benefits for “long-term security challenges”.

Mr Pompeo batted away European fears over the transatlantic relationship and said there was more to unite the two sides than to divide them, given their shared interests in combating China’s attempts to establish an “empire”.

He played down differences in areas such as President Donald Trump’s 2018 decision to pull out of the Iran nuclear deal as “tactical”, although European diplomats list fundamental disagreements in areas such as climate and trade.

“I’m happy to report that the death of the transatlantic alliance is grossly exaggerated,” Mr Pompeo said, pointing to US efforts on boosting its military presence and cyber security in Europe. “The west is winning, and we’re winning together.” 

“Don’t be fooled by those who say otherwise,” he said, adding that history showed the “weak and the meek” never won. 

But speaking after Mr Pompeo, Emmanuel Macron, France’s president, warned of a “weakening” of the west, echoing wider European worries. Many European officials see an increasingly unilateral US as not just a Trump-era phenomenon, but part of a geopolitical structural change driven by forces including the rise of China, Russian’ military resurgence and the assertiveness of regional powers in the Middle East and elsewhere. 

Barrons : Facebook and Google Face Real Regulatory Risk. The Pain Is Just Starti

Facebook and Google Face Real Regulatory Risk. The Pain Is Just Starting.

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 problem of the winner’s curse,” he said. “A huge part of why Facebook has been highly successful in the e-commerce vertical is that it is able to leverage cross-site behavior to better see purchase history/purchase intent and is hence extremely effective getting targeted e-commerce ads in front of users at the right time.” That model sounds increasingly unsavory in 2020.

On the same day that Levine published his note, the Federal Trade Commission issued an extraordinary demand to the five big tech companies: It wants details on every deal they completed over the past 10 years that weren’t previously subject to FTC review. That’s a lot of transactions. Data from Crunchbase shows the five companies closed a combined 495 deals over that decade, transactions that represent billions of dollars and thousands of jobs.

The commission said the probe “will help the FTC deepen its understanding of large technology firms’ acquisition activity...and whether large tech companies are making potentially anticompetitive acquisitions of nascent or potential competitors.”

Let’s be clear: This is a fishing expedition that has the potential to turn into big game hunting. On a call with reporters this past week, FTC Chairman Joseph Simons said that if the investigation finds problematic acquisitions, “all of our options are on the table.” The FTC “could go back and initiate enforcement actions to deal with those transactions.” And that could include unwinding deals that closed years ago.

Commissioners Christine Wilson and Rohit Chopra proposed that the FTC also look closely at “consumer protection issues arising from the privacy and data security practices of technology companies, including social media platforms.” They think the FTC should study “how the monetization of data impacts the creation and refinement of algorithms that drive content curation and targeted advertising practices.”

Wedbush analyst Dan Ives wrote that the FTC move “opens up a new chapter” in the battle between Washington and Big Tech, just as the 2020 presidential election heats up. While still massive, rich, and powerful, the tech companies are under assault from both sides of the aisle. The latest investigation comes from President Trump’s FTC, but it isn’t hard to imagine the same approach from a Sanders or Warren Administration. And recent hearings on Capitol Hill suggest Democratic and Republican lawmakers are equally interested in going after big tech.

Ives thinks Facebook and Google are confronting the most scrutiny, but the FTC is casting a wide net. And while he expects fines, rather than breakups, it’s hard to escape the sense of a bigger battle to come.

Ives concluded: “This FTC probe is a shot across the bow toward Big Tech.”