Every dominant industry reaches a point where it becomes a dominant political player. It happens when the industry comes under attack, just at the point where profitability has been maximized. Think oil in the 1970’s, manufacturing in the 1930’s or the utilities in the 1900’s. Technology has now reached this point.
Facebook Inc (NASDAQ:FB) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) are being widely blamed for the election of Donald Trump. The medium was the message, and the internet medium is outside its owners’ control, so the government must step in, goes the argument.
For the artists formerly known as Google, this is an existential threat. A growing number of voices are now clamoring for Google to be broken up. The company whose motto was once “don’t be evil” is now being called a “tax-avoiding, job-killing, soul-sucking machine.” Tech investor Roger McNamee dreams of breaking Google into 8-10 different companies.
Risks Not in Alphabet Stock
These calls are now coming from both the left and the right, and they’re not in GOOGL stock.
Alphabet stock currently sells at a price-to-earnings multiple of 34. A few years ago, it was at 25. Sales are still growing at 23% per year, but profits are not.
GOOGL chose to take a charge to earnings in the fourth quarter to account for the Trump tax cut, and higher profitability may be in its future from that standpoint, but Alphabet stock is also becoming a products company, and that has to eat into margins.
GOOGL now spends more on lobbying Washington than any other single company, and it made nearly $9 million in political contributions during the 2016 cycle and investors still see political risks as a distant rumble.
But it is becoming increasingly popular to use the executives behind Alphabet stock as political punching bags, and from the right as well as the left. Some of the most damaging political attacks are even coming from advertisers.
What Does Google Stand For?
If Google were a Hamilton character, it would be Aaron Burr — constantly lying in wait, standing for nothing but its own ambition. Spoiler alert. Burr was the villain.
This should not be a surprise. Until recently GOOGL hasn’t had to have a political stance. What was good for Alphabet stock was said to be good for the U.S. The idea was that an open web, one without borders or regulation, would be good for everyone.
But it’s not.
Google, and the other “cloud czars,” — Facebook, Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT) and Amazon.com Inc. (NASDAQ:AMZN), have won the internet market competition. In the process, they have taken over a host of industries, including media. But GOOGL does not admit to this. It maintains the fiction that it’s just the phone company, a common carrier, to avoid regulation and responsibility for what goes through its systems.
What the 2016 elections proved is this is no longer good enough. Google’s AdSense is a business model that serves advertisers, first, last and exclusively. Older media business models served readers, where they lived, where they worked or where their interests lie. Media businesses made choices based on the perceived interests of readers; GOOGL does not. It “lets” readers make choices, but it doesn’t supply money for the content that readers are looking for.
If Google won’t stand for anything what will it fall for? This is a question the company must answer, because otherwise governments will find their own answers, and Alphabet stock won’t like them.
GOOGL Stock: Time to Grow Up?
After 21 years in business, Google is now all grown up. That means it’s becoming bureaucratic, with office politics often killing off projects.
But being a grown-up also means taking responsibility for the direction of the country, by extension of the world. Self-interest alone won’t be good enough for GOOGL stock. Don’t be evil will no longer suffice.
It’s a perilous time to be an Alphabet stock owner.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in MSFT and AMZN.
