[Correction: This article has been updated to correct the nature of a recent data breach.]
Shares in Google parent Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) have followed the Nasdaq Composite averages higher in 2019. GOOGL shares opened for trade Nov. 27 near an all-time high of $1,316.
Analysts have steadily been raising their one-year price targets, which now average $1,450. At its current price Alphabet trades at 28.2 times earnings, with a market capitalization of $907 billion.
These should be the best of times for Google.
But in many ways, they’re the worst. The company known for the mantra “don’t be evil” is having a tough time dealing with the President Donald Trump years. Its culture is undergoing a mid-life crisis. The U.S.-China trade war is becoming an existential threat.
The Labor War
The company’s corporate culture, and the goodwill it has generated, are rapidly eroding. Alphabet’s decisions to fire employee activists and hire a firm that works against unions, are destroying morale in a highly intelligent rank and file.
Wages and working conditions aren’t the issue. The issue is Google’s participation in, and acceptance of, the policies of the Trump Administration. What began with conservative employees being pushed out for bullying has become an attack on anyone in the rank and file speaking out.
If its own employees don’t trust Google, why should you?
Don’t Give Data
The problem is that in order to grow beyond search, into practical services like banking and healthcare, Alphabet needs unprecedented access to personal data.
Amnesty International calls this call for data a threat to human liberty. Tim Berners-Lee’s Contract for the Web, which promises respect for privacy, looks like a band-aid where a tourniquet is needed.
As a result, Alphabet’s decision to work with Ascension on personal healthcare — collecting and analyzing data on millions of people — has now drawn the ire of Congress. Google’s defense, that it’s just trying to build tools to help doctors with their diagnoses, is being drowned out. It’s a bipartisan attack. Politicians want Google get the permission of doctors and patients before using anonymized data in designing its software.
It’s all made rougher by the coming election season. Republicans and Democrats are both pushing back on a Google decision restricting political advertisements.
The China Threat
Alphabet could use a friend in Washington because it faces a crisis with China — and not one of its own making.
Using its hold on the Chinese market as leverage, Huawei has resisted Trump’s blacklist. It is now threatening to replace all of Google’s mobile tools on future phones, locking it out of the Chinese market and challenging its Android system on a global scale.
This is not a fight Google sought. If the internet continues to be Balkanized, with national internets replacing the global network, international companies will find it hard to operate. Iran recently cut access to the global internet. Russia wants to do the same. If China can create and sell a “national internet” without Google, technology and economics take a back seat to political deal-making.
It’s not a world where Google or Alphabet stock can succeed.
The Bottom Line on Alphabet Stock
Google is aware of the threats that public pushback against its services represents. That’s why it’s investing heavily in Google Cloud.
But even there, risks exist. In October, a dark web researcher found 1.2 billion records that had been left unprotected. It’s a massive data breach that put Alphabet in the headlines.
What Google needs right now is political leadership. With co-founders Larry Page and Sergey Brin AWOL, the problems are on the desk of Chief Financial Officer Ruth Porat. Her business is numbers, not ethics.
If you buy Alphabet stock today, you’re sailing into troubled waters.
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 no shares in companies mentioned in this story.
