Study says SEC 10-K not fit for purpose when it comes to Big Tech, and the companies are using that to their advantage Current US Securities and Exchange Commission (SEC) disclosures have not evolved to capture new Big Tech business models and thus allow the world's megacorps to dodge antitrust rules, with the integrity of the market policed only by whistleblowers, according to a recent study. "Public investors, regulators and competitors …
for business models that monetize free services
That's fundamental misunderstanding of how big tech works.
The services are not free and they confuse product with the customer.
I'll make it simple:
customer (consumer) - the product
shareholder - customer
"free" service - a mean to generate value for the customer (you can think of a service as a combine harvester and the product is the crop)
Hope this helps.
Old News -- 10Ks usually are not very informative. An awful lot of publicly traded companies seem not to be very anxious to share actual information about their finances with that selfsame public. I doubt that will change much even if the reporting requirements change. They have people to make sure that transparency doesn't happen unless it just can't be avoided.
Nonetheless sometimes things can be seen. In 2000 or so, on a whim I compared the 10Ks for Worldcom and Sprint which seemed to be in much the same business and concluded that Worldcom looked to be the world's largest freestanding collection of IOUs. It turns out that not only were they deeply in debt, they were claiming imaginary assets. Lots of them. They filed for bankruptcy in 2002. Similarly in 2006 I compared the 10Ks for Ford and GM. Ford was making a little money. GM was losing a little. That was in good times. What would likely happen when times turned bad? Yep, Ford survived the 2008-2009 financial crisis. GM didn't.
So., 10Ks probably aren't entirely useless. But I wouldn't expect to learn much from most of them. With or without better requirements.
So far, so normal. WorldCom's leverage was outwardly normal, ie borrow money, build network or other businesses, get your mugshot on Forbes before the DoJ takes one. So detecting shenanigans really needs an understanding of the market before you can try doing comparisons. At the time WorldCom imploded, Sprint was equally fsck'd and for much the same reasons.
Problem was entities that should have been on the side of investors, weren't. So ratings agencies would give telco paper AAA, investors would buy that paper, then find out later it was junk and the rating was just an opinion. And investment banks wanted high ratings so they could sell a few billion of bonds and collect the fees.
And then of course there were the auditors, who should have spotted problems, but preffered to collect fees. Much of the telco stuff was fairly obvious and involved how things like IRUs and access lines were treated. I once got into big argument with sales. Customer wanted to get a decent chunk of capacity between 2 premium countries in exchange for an IRU between 2 cities we weren't connected to, and had no forecasts for. So basically the IRU on offer was essentially worthless, or a liability.
But swaps like that were common. Then contagion spread and other sectors did much the same thing, as Vanity Fair described it. My bank has a cat, your bank has a cat. Mine's worth $10bn, so is yours. So let's swap cats and we'll both have $10bn to spend. And it took the market quite a to figure out the security was just a pair of Icelandic moggies.
And then there was mortgage backed (in)securities, or DotCom2.0 with valuations waaaay out of line with value, or fundamentals. And much the same risks, that sometimes aren't. Like pretending something is new and disruptive when it fundamentally isn't. Or the risk of larger-than-Ebbers sized margin calls influencing CEO behavior. Or journalists baffled by bs. Musk asks twatter if he should flog $10bn shares. MSM goes wild! A few even notice the sale was filed before the poll. Or that there was a $15bn tax bill due.
But such is political. At least regulators have powers to compel. Or ignore given the revolving doors beween regulators and investment banks.
Or in a joke dating back to the 1920s
Two economists walking down a road see a bug on a leaf.
1st economist says, I'll give you a $100 to eat that bug, the 2nd economist does so.
He then sees another bug and says to the first economist, I'll pay YOU $100 to eat that bug.
The 1st economist replies, but then we will both have eaten a bug and neither of us will be better off.
Ah, says the 2nd but we will have contributed $200 to the economy.
10-Ks are filed by public corporations for investors (primarily huge ones) and financial analysts. Other than tracking that they were filed, the SEC doesn't do much with them.
They are certified by an independent auditor (like Ernst and Young, who certified Alphabet). Anything less than a clean opinion raises red flags for investors.
The income statement and balance sheet allow investors to compare corporations against each other and over time but are not that enlightening. However their ballooning debt is what tripped up Worldcom.
For the most part, the forward looking statements are what investors are interested in. This is where you see more detailed financial results (the audited results are only for the corporation as a whole). This is also where you see reports of chip shortages or supply chain issues or hiring issues or COVID issues. Alphabet's lawsuits, government actions, and settlements are included. These all affect investors willingness to invest and analysts willingness to recommend.
If you read through the 99 pages of their 2020 Annual 10-K at:
https://www.sec.gov/Archives/edgar/data/1652044/000165204421000010/goog-20201231.htm
you will have a good understanding of Alphabet.
I'm not sure what University College London's AMUs would add to that or how it would be defined in a standard way for all corporations. In an age of trillion dollar corporations, breaking down segments bigger than $5 billion seems needlessly cumbersome, and calling for a digital platform framework when all corporations have a digital platform of their own seems so last century.
BTW, Alphabet is quite clear throughout in saying that its customers for search are the advertisers. We users are measured only by clicks on their customers' ads (and I didn't add anything to the behemoth).
From Wikipedia -
"On January 3, 1996, the 104th Congress of the United States amended or repealed sections of the Communications Act of 1934 with the Telecommunications Act of 1996. It was the first major overhaul of American telecommunications policy in nearly 62 years."
No wonder big business can get away with anything.
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