With the recent controversy over at Facebook Inc. (NASDAQ:FB) over privacy issues, it’s time to consider whether or not there is appropriate risk being priced into Alphabet, Inc. (NASDAQ:GOOGL) in regards to similar concerns. I don’t think that there is. I think that Google stock may not be appropriately priced for some kind of regulatory action related to privacy, and quite possibly censorship over the long-term.
The Princeton web transparency and accountability Project reported that 76% of websites contain hidden Google trackers, and it is also notable that 24% of websites have hidden Facebook trackers, and 12% have hidden Twitter, Inc. (NASDAQ:TWTR) trackers.
Risks for Google Stock
In the back of our minds, we all know that our privacy has been compromised by the Internet. But like the good ostriches we are, we hide our head in the sands regarding just how much data is being collected on us by Alphabet, in the form of Google search engine.
Our interests, our location history, what we browse through, what we search for, what we purchase, the articles that we read, how long we stay on a given website or given webpage, what are political leanings are, what our sexual proclivities look like, the kind of man or women that interest us from a dating perspective, you name it, and Google knows about it.
Of course, all of this is what drives Google stock. All of this information that gets collected is filtered down into a data profile, which permits for targeted advertising that follows you all around the internet.
I’m sure you’ve noticed that, in the case of Facebook, you might do a search on Google for something, and then suddenly in your Facebook feed and advertisement for what you just searched for appears.
I suppose that might be great if one could purchase a genie in a lamp that can grant wishes. But that’s not the case, is it?
Ad Revenues at Risk
Yet it is this advertising that drives virtually all of Google stock revenues. It’s no wonder that Google stock and Facebook gobble up nearly 2/3 of all digital advertising budgets, and were responsible for 75% of digital advertising growth last year according to the marketer.
That brings us back to the question of whether or not there will be some form of regulation or legislation that curbs how alphabet and Facebook are gathering data. Therein lies the issue regarding whether or not risk has been priced into alphabet stock, and why I don’t believe that it is.
It seems unlikely that under the present pro–business administration that steps will be taken to curb this behavior. On the other hand, neither party really has incentive to do anything about it, at least initially, because the data that these two companies provide probably also provides valuable data in terms of how people vote.
I suspect, however, that at some point public outcry will be loud enough that it will force Congress or regulatory agency to act against Google shares.
It will be either something like a third-party obtaining data it wasn’t supposed to, either by oversight or via hacking, or they’ll be some bizarre tragedy that occurs in which some person or persons die as the result of their privacy being breached.
The more curtailed data mining is, the less valuable the data will be to advertisers.
Is that likely to happen anytime soon? Probably not. Nevertheless it is a risk of investing in Google stock that investors may not be considering.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.