Janus Henderson Investors: Technology for good: supporting the fight against COVID-19

Key takeaways

• Big tech is playing an instrumental supportive role during and after the crisis. As we emerge from COVID-19 the regulatory debate will evolve and scrutiny will continue but we hope that it will become more balanced as the perceived value of ‘big tech’ develops.
• In the team’s opinion, rigorous regulatory oversight of the technology industry is not only necessary but should be welcomed. As active investors the team also proactively engages on ESG issues in the belief that it may foster more sustainable long-term growth for the companies they invest in.

The relentless rise of ‘big tech’ companies over the past decade has led to growing concern for the influence and the need for better regulatory oversight of technology ‘giants’ such as Google, Facebook, Amazon and Microsoft. Fake news, election tampering and data privacy have become part of our lexicon. The fallout from the 2016 US Presidential Election and UK Brexit Referendum, followed soon after by the Cambridge Analytica scandal, led to Facebook’s CEO and Co-Founder Mark Zuckerberg being hauled in front of US Congress to testify in 2018. More recently, simultaneous investigations by the US Department of Justice, Fair Trade Commission as well as multiple US states highlight that ‘big tech’, which has usurped Wall Street’s key role in the Global Financial Crisis, as the industry firmly in the regulatory cross hairs.

As a team, we have always believed that the regulatory debate was more nuanced than portrayed by traditional media, which collectively can be perceived to have a vested interest in bashing ‘big tech’ companies which have disrupted traditional media advertising business models. With great power comes great responsibility and there is a steep learning curve for young companies that grow exponentially to attract billions of users before the founder reaches 30 years of age. Mistakes were clearly made, and punishments deserved. This is also not a new debate with Mark Zuckerberg’s travails reminiscent of Bill Gate’s battles with the regulators in the late 1990s that culminated in a district court ruling in 2001 that Microsoft should be broken up (which was later overturned).

Technology – lending a helping hand

As we look forward to a post-pandemic world it is worth thinking about the role of ‘big tech’ in our society and the related evolution of the regulatory debate. As those of us who can work from our homes continue to do so, with our children remote learning, a reliance on entertainment online and ecommerce for food and essentials, the general perceived value and appreciation of the companies that enable these activities is likely to rise. Children are for example being taught via Google Classroom, many are working via Microsoft Teams, communicating with friends and family via Apple’s Facetime or Facebook’s WhatsApp, getting essential deliveries via Amazon and being entertained by Netflix. ‘FAANG’ (Facebook, Apple, Amazon, Netflix, Google) has hopefully taken on more positive connotations during this tragic crisis.

In partnership with governments

While consumers have always been more comfortable with ‘big tech’ as recipients of its innovation, governments and regulators are much more circumspect. However, they too are now being driven by the extraordinary demands of this crisis to work much more closely in partnership with ‘big tech’ in a myriad of new ways. The advantages of large data sets to gain insight into the pandemic has become more apparent. Google is providing governments with community mobility reports in 131 countries, tracking via opt-in location data footfall in parks and retail locations to determine the effectiveness of lockdown measures. Facebook, in partnership with Carnegie Mellon, has created a US virus symptom tracker where opt-in survey data is used by researchers to predict hotspots and prepare hospitals, as well as to provide insight into potentially easing or ending lockdown periods. Amazon, in partnership with Carnegie Mellon and John Hopkins University, has created a ‘data lake’ of curated, centralised, pre-processed public data to help to understand and fight the virus. Since contact tracing will be essential in a post-lockdown world, Apple and Google have announced a unique joint effort to enable that functionality and interoperability between billions of iOS (Apple) and Android phones so that governments can quickly track and locate a person that has been in contact with someone diagnosed with COVID-19 in a second wave or in future pandemics.

In a strong financial position to help

As well as providing ‘big data’ (huge data sets), ‘big tech’ companies have also been providing support to various other pandemic fighting efforts. Amazon has pledged to reinvest the entirety of the company’s expected second quarter profits of US$4bn in to getting more products to customers as well as keeping its employees safe. Facebook has promised US$100m in grants to support small businesses with free business profiles, as well as focusing on the veracity of information during the pandemic with another US$100m to support the news industry. This is in addition to the COVID-19 information centre that appears on apps like Facebook, FB Messenger, WhatsApp and Instagram, which are visited by billions of people. ‘Big tech’ has the resources and capability to roll out these initiatives and reinvest. These companies have used the good times to build arguably the strongest balance sheets compared to other sectors,* and have not had to request for government bail outs. ‘Big tech’ is currently in the position to help governments and communities.

Beyond ‘big tech’

But providing help is not limited to ‘big tech’. Nvidia, for example, has granted Parabricks, which uses graphics processing units (GPUs) to accelerate the analysis of genomes to COVID-19 researchers free of charge for a period of time. Uber is offering free rides to key workers and victims of domestic violence during the lockdown. ServiceNow has been providing emergency response apps free of charge to help tackle the pandemic response for both corporates and governments. Meanwhile, Salesforce.com recently announced Work.com apps to help corporates and communities manage the post-lockdown return to work. Amphenol, a fibre optic cable manufacturer, has been utilising the flexibility and fast time to market of 3D printing to manufacture masks and other personal protection equipment (PPE). Zebra (data capture and automatic identification) solutions were installed in the National Health Service (NHS) temporary critical care Nightingale hospitals in the UK to identify and manage the flow of COVID-19 patients. New use cases for technology continue to emerge during this pandemic and technology companies have proved very flexible and innovative in bringing their technology capabilities to bear on this global crisis in record time.

Sharing data responsibly

In the battle against COVID-19, the scale, huge data sets and location tracking capabilities of ‘big tech’ are appearing to have less negative connotations. Governments are coming to realise that the magnitude of the challenge to track and tackle an invisible enemy that may likely re-emerge every year to some degree often requires a partnership with technology companies. Naturally, the necessary safeguards will need to be put in place given the sensitivity of a lot of this data. In China, companies like Alibaba and Tencent have enabled the unlocking of the country by providing a standard for health codes linked to contact tracing, location tracking and medical records.

General Data Protection Regulation (GDPR) in the European Union and subsequent regulation and proactive measures by ‘big tech’ in the US give us some comfort that these endeavours will be approached with the necessary protections in other regions. These examples demonstrate a sensitivity to using only opt-in data and anonymised location data, and in many cases only researchers are provided with access to this data. However, we must not be complacent about this risk and the recent escalation in US/China tensions related to the COVID-19 ‘blame game’ will be an ongoing narrative for the US Presidential Election later this year, bringing additional regulatory complications.

Embracing regulation and ESG factors

Rigorous regulatory oversight of the technology industry is not only necessary in our opinion but should be welcomed. As active investors we also proactively engage with technology companies to highlight key environmental, social and governance (ESG) issues that run the risk of heavy-handed regulatory intervention if not addressed by the industry itself. Identifying management teams that share our concerns and tackle these issues responsibly is a key part of our investment process as we believe it may foster more sustainable long-term growth and potentially help reduce risk in our investments. For many years we have been actively engaging with technology companies on a wide range of issues such as data privacy and video game addiction. As we emerge from this tragic pandemic, we believe the regulatory debate will evolve and regulatory scrutiny will continue but it will hopefully become more balanced as the perceived value of ‘big tech’ during and after the crisis develops. This would add to the long-term investment case for technology stocks.

*Source: Credit Suisse as at 1 April 2020. Information Technology versus other MSCI World Sector indices excluding Financials. Comparison based on net cash (cash minus debt) as percentage of market capitalisation = a measure of the net cash on a company’s balance sheet as a percentage of its total market capitalisation. Data correct at time of publication and is subject to change.

Balance sheet: a financial statement that summarises a company's assets, liabilities and shareholders' equity at a particular point in time. Each segment gives investors an idea as to what the company owns and owes, as well as the amount invested by shareholders.

GPU or graphics processing unit: a computer chip that renders images, video and 2D or 3D animations for display.