How to Handle the FBI and Google
Alexander is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Google (NASDAQ: GOOG) recently got its hand slapped by a federal judge. According to the Associated Press, the FBI has been sending letters to Google to collect unlimited sensitive, private information, such as financial and phone records, prompting complaints that the government is infringing on the privacy of citizens. U.S. District Court Judge Susan Illston on Tuesday rejected Google's arguments and ordered Google to comply with the demands of the FBI. For now Google must comply with the judge's ruling -- even though it is on hold until the 9th Circuit Court of Appeals decides on to overturn the judge's decision or not.
In the meantime, data on 7,201 people will be leaving Google and will go into the hands of the FBI. Hopefully, the information will reduce criminal activities, but stakeholders in Google should feel a little uncomfortable as it furthers the impression that Google may not be protecting the data of its users.
How should shareholders react?
The news certainly isn’t good for Google shareholders. The implication of this FBI win means a loss of brand value, perhaps even a loss of market share. Recently, Microsoft (NASDAQ: MSFT) launched an advertising campaign with a catch phrase, “Don’t get Scroogled.” The advertising team at Microsoft was able to gain back some market share from the ad campaign, and the advertising team over at Microsoft could worsen the public perception of Google’s image.
Corporate warfare has gotten a little messy. Fortune 500 companies are name calling each other and looking for every opening to take a bigger share of the pie. Samsung paid people to say positive things about Samsung Galaxy S, and Apple (NASDAQ: AAPL) CEO Tim Cook was brought before a hearing in order to attest on behalf of Apple’s tax practices internationally. Technology companies could be the next punching bag for scrutiny by the broader public.
Take your position
I still believe Google is a compelling investment opportunity despite the recent run in with the FBI. The concern I have comes from the fact that Google search advertising represents a large percentage of the company's total revenue, and even a moderate decline in earnings from search advertising could cause a slight miss on earnings.
Therefore, investors who want nothing to do with the added cost of government intervention should consider buying either Microsoft or Apple. These two companies are likely to grow, but the growth doesn't come with any significant risk as both companies have a heavily diversified portfolio of businesses, and an excessive amount of cash on the balance sheet.
Apple remains hot
Apple’s brand is extremely valuable and is arguably one of the main reasons consumers even want an iPhone. The phone itself is associated with status, wealth and popularity.
The phone alone isn’t the selling point though. The company has laid out a careful marketing strategy that involves a direct-to-consumer retail channel, paired with the easiness of transferring files from one Apple device to another. You can also add in the fact that iTunes and Apple app store purchases have gone up by 30% in the most recent quarter which implies that Apple consumers are loading up on app purchase in anticipation of buying the next iPhone and still keeping the rich content library that cannot be transferred onto other platforms.That being the case, any concern over the death of the iPhone or speculation of Apple’s future growth as being unlikely might as well just be thrown out the window.
Google's court ruling will give Microsoft an open invitation to introduce even more “Scroogle” ads. If you don’t want anything to do with this, go with Apple. However, if you want to diversify in technology stocks and the risks they present, buy the Google, Apple, Microsoft trio.
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Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!