To GOOG or not to GOOG. That is the question!
That Google (GOOG) is king of the search engines is nothing new. That it is a darling of Wall Street is no news.
Nor is it unknown that over the year there have been issues with privacy. The questions for the prudent investor are:
- What are these issues?
- Might they have any impact on future earnings?
In this series I will go over each of Google's major privacy issues that have come up, and present the case of a new search engine that promises complete privacy. The working outline for the series can be found on my instablog post. This will be updated with links to the articles as they are posted.
First, let's take a look at the company.
- Its name has become a verb:
verb (used with object)
2. (often lowercase) to search the Internet for information about (a person, topic, etc.): [Dictionary.com]
- It reaches over 1 billion people per month, serving 17 billion queries in December 2012.
- It tops the list of search engines with 4x the next contender, Bing by Microsoft (MSFT) and almost 6x that of Yahoo (YHOO):
comScore Explicit Core Search Share Report*
Core Search Entity
Explicit Core Search Share (%)
Total Explicit Core Search
*"Explicit Core Search" excludes contextually driven searches that do not reflect specific user intent to interact with the search results.
- Its revenue and stock statistics dominate the field.
Direct Competitor Comparison
Qtrly Rev Growth (yoy):
Gross Margin :
Operating Margin :
Net Income :
PEG (5 yr expected):
[Source: Yahoo Finance]
- The analysts expect continued growth from Google:
In short, Google is flying high with the stock currently ($727) retracing up towards its all time high of $774. It does not seem that past issues have had any negative effect.
So What Are the Issues?
Google has had several issues regarding customer privacy over the years. This series of articles will explore these issues, past and present, including some of the legal actions taken by the FTC and the European Union.
The watchdog group The American Consumer Institute Center for Citizen Research states in its study:
In terms of conduct, Google has had an ongoing string of alleged instances that are raising public concerns, including: the unauthorized collection of consumer passwords, emails and other personal information (Wi-Spy); knowingly advertising illegal online products; the bypassing of the iPhone privacy settings to collect online information on consumer without their knowledge or permission; as well as other issues.
There have been several major areas at issue with privacy concerns:
- Their street scanning program for Google Street View has had issues with the basic concept of scanning people's homes, but also the fact that they were skimming information from people's wifi networks as they passed.
- Google Buzz was a social media experiment that went wrong as people's data was shared in ways they had not intended.
- There were a couple of issues surrounding browsers, most importantly how they worked around Safari opt-out settings to continue to track users who had purposefully set settings to opt out.
- Their Gmail system continues to read user emails in order to direct targeted ads.
- In a peripheral issue, the Federal Trade Commission (USA) just completed an agreement regarding the placement of sites with Google business interests above those of competitors in search results.
- Finally, France's National Commission for Computing and Civil Liberties, is investigating Google privacy policies as not protecting the consumers. They have the ability to levy fines against the behemoth, as do agencies of other European governments.
Several watchdog groups are at odds with Google policies. John Simpson of consumerwatchdog.com said in a Fox News interview:
We think of ourselves as Google's customers. We are not. We are Google's product.
How prevalent is this issue? With the continued growth of Google user base, one would think that it is not a problem at all. Users, especially younger people it seems, are ready to trade a little privacy in return for free services.
Yet a November 2012 Pew poll regarding parents of teens reports:
81% of parents of online teens say they are concerned about how much information advertisers can learn about their child's online behavior, with some 46% being "very" concerned.
Additionally, there are several groups that continue to press on various issues.
So, while this issues now seem to be of little import, it seems to me that if the general public were to suddenly decide that privacy were a real issue, especially if Google were to have another major snafu, then there might be serious backlash that could reduce Google's position in the public eye, and this would negatively affect revenue and profits.
I will address this issue again in the last segment of the series.