Crosshairs Shift From Facebook to Google
Last week, The Wall Street Journal alleged that Alphabet Inc (NASDAQ:GOOG)—aka Google—had mismanaged user data by letting third-party developers scan “Gmail” accounts.
As such, we’ll need to consider how these privacy concerns might affect our GOOG stock forecast for 2019.
Here’s the story in a nutshell:
- In theory, Google vets developers before giving them user data.
- Also, in theory, Google requires “explicit opt-in consent” from users.
- In practice, neither of these things are enforced.
In The Wall Street Journal’s words:
The latitude outside developers have in handling user data shows how even as Google and other tech giants have touted efforts to tighten privacy, they have left the door open to others with different oversight practices.
(Source: “Tech’s ‘Dirty Secret’: The App Developers Sifting Through Your Gmail,” The Wall Street Journal, July 2, 2018.)
My initial reaction:
Mark Zuckerberg is the luckiest guy in the world. Until now, Facebook, Inc. (NASDAQ:FB) had taken the brunt of the “tech-lash.” But now that the attention is shifting toward Google, Zuckerberg can take a night off damage control.
My second reaction:
This a self-inflicted wound. Last year, Google announced that it would stop scanning Gmail accounts in order to keep users “confident that Google will keep privacy and security paramount.” (Source: Ibid.)
I remember thinking it was bad PR. Let’s promise to stop doing this terrible thing before someone finds out we’re doing it.
No doubt some executive at Google thought it was brilliant to front-run potential scandals. What it did, though, was cause journalists to look into Gmail data and how it’s managed.
Without that first announcement, it’s possible this story would never have come to light.
What’s Happening With GOOG Stock?
The good news: There doesn’t appear to be much damage (so far). In fact, Google stock is up more than 10% in the last three months. Granted, this has been an unusually volatile year—as you can see from the hairpin turns on its YTD chart—but it’s good to know the share price is still upbeat.
The bad news: We’re still in the opening act of this drama. For all we know, Google’s CEO could be hauled up in front of Congress like Mark Zuckerberg was a few months ago. Or else additional stories could appear in the press, shedding light on previously unknown misuses of data. We really don’t know.
That said, let’s stay in the moment. And for the moment, nothing bad has happened. We have no reason to believe that’s going to change, so I am still incredibly bullish on Google stock.
Who Cares About Data Privacy, Anyway?
This seems like a simple question—it’s not.
Consumers say they care about privacy, but I’m not sure the evidence is on their side. Just look at the Cambridge Analytica scandal. After it came to light, there was a campaign to #DeleteFacebook that resulted in…nothing.
When asked about the users deleting accounts, Mark Zuckerberg said, “I don’t think we’ve seen a meaningful number of people act on that, but, you know, it’s not good.” (Source: “Zuckerberg on #deletefacebook: ‘You know, it’s not good’,” TechCrunch, March 21, 2018.)
And that summarizes the situation perfectly. It’s not good, but, hey, we’ll be fine.
Zuckerberg repeated this message a handful of times, including during his congressional testimony. And when the company reported earnings, we saw for ourselves that he wasn’t lying—revenue and earnings were untouched.
So, I’m not convinced that consumers care about privacy. At the very least, they care more about social media.
What about politicians? Do they care?
Maybe, insofar as it makes them look like responsible leaders with the public’s interests at heart. However, I wouldn’t count on much action from Washington, not with the pro-business Trump administration in power.
So, to recap: 1) customers don’t care, and 2) politicians won’t act. That means investors should ignore this giant nothing-burger.
We’re only a few months beyond the Cambridge Analytica scandal, yet FB stock hit an all-time high of $204.00 at the time of writing.
I think that says loud and clear how the market feels about privacy concerns. So, if Facebook is the model, GOOG stock should be perfectly fine.