Will Google's Privacy Policy Changes Derail Stock?

Bill is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

It has been reported that several European Union countries will be slapping Google (NASDAQ: GOOG) with some fines over changes in its privacy policy. As Google's stock reacts to the news of the fines (and, of course, the news of the much anticipated Google Glass), questions are still on the EU horizon. However, I predict the possible court battle will not impede the growth that we will see as Google continues to do what it does best – make outstanding technology in a customer focused way.

What Is Happening

It was over a year ago that Google's "new" privacy policy was launched. That being said, it seems that it is still causing problems across the pond. It began as a merging of approximately 60 policies for Google products and services into one single policy. This would not have been a problem, except that it is claimed that the policy breaches the U.K. Data Protection Act

The French data protection authority also claims that Google has failed to respond to its requests to make changes to its controversial privacy policy. After repeated attempts with no response, they have handed the case to European member states to deal with the matter locally. This one move could open Google to multiple fines at a local level in the coming months and quarters, once each authority has concluded its investigation into its privacy practices.

Maximum fines vary by region, but just one of these local level authorities can serve a maximum £500,000 ($758,000) fine against the search giant, and each data protection authority would have to enact their fines separately, a costly plight for Google.

Google repeatedly said in statements that it takes the privacy of its users seriously, however, its main intent is to glean the most annual profits through serving ads to its users. And not just any ads, but more specific and relevant ads for targeted users.

But for the European authorities, Google remains a big target with more than 90% market share on the continent. Google has continued to grow – even outperforming Apple (NASDAQ: AAPL), which has hit a rough patch only months after reaching its ‘Most Valuable Company’ status.

Why it Won’t Be Like Apple

Apple shares are trading relatively flat just over $420. This, even after a Wall Street Journal report stated that the company plans to begin building the next iteration of the iPhone in the second quarter, ahead of a possible summer launch.

The report said the company will begin production of a new model “similar in size and shape” to the current iPhone 5, which may keep to the pattern Apple has established with past devices, like the iPhone 3S and 4S models that were similar in design to their immediate predecessors with a faster chipset and other internal improvements. What is surprising is that this news did not positively impact stock, as most announcements of rollouts do.

Apple had its own court woes a few months back. The problem came about with China requesting Apple rename its tablet, and/or seek compensation from past use of the trademark for the name ‘iPad.’ The outcome did not severely impact final sales of the tablet in China – nor even delay it for that matter. Chinese consumers proved to be eager to get their hands on the product, no matter what it is called.

Even so, with the hottest selling products (both iPad and iPhone), Apple stock still stagnates. I predict Apple may find it difficult to hit expectations in the March and June quarters even with a quicker product launch, primarily because it will be preceded by two high-profile Android phones — the Galaxy S4 from Samsung (NASDAQOTH: SSNLF) and the HTC One from HTC. Samsung recently reported extremely positive news that could also be bad for Apple: it released impressive sales numbers in its first quarter update, with sales jumping 15% year-on-year to $46 billion and operating profit skyrocketing 53% to $7.7 billion year-on-year. What is even more impressive is that these first quarter results were propped up by devices other than the Galaxy SIII and Galaxy S Note, such as its more basic and mid-range phones. Samsung also unveiled the Galaxy Note 8.0 in February and the Galaxy S4 smartphone in March, two devices that should have all mobile phone makers worrying. 

As investors ponder the almost 30%-plus drop in Apple’s stock from its highs, it’s not unfair to ask whether the drop has been overdone -- or whether the stock is on a precipice, poised to drop further. Trading at $705 a share when the iPhone 5 was released, I believe Apple simply suffered from overly high investor expectations. At the time, it was trading at about 17 times earnings, and boasted the world's highest market cap. Now, the stock is currently squatting around $423.

It is easy to take this at face value and join Street sentiment that Apple is dwindling. However, Apple has a current P/E of less than 10; a decent sized dividend of 2.4% (far higher than U.S. treasuries); nearly $140 billion in cash; and zero debt. Throw in the world’s most valuable brand name, Apple's patents, property, plant and equipment, and it is still easy to classify it as a force to be reckoned with.

Fines will in no way negatively impact Google. While people are eyeing the situation in Europe with interest and curious attention, investors have not faltered in their faith. The stock, currently around $811, is up over 10.7, a gain of about 1.34%. Moreover, Google has risen 34% in 2012, following gains in each of the past three years. It seems that nothing can stop the forward drive of this giant. In addition, Sanford C. Bernstein reaffirmed their outperform rating on shares of Google in a report issued on Thursday. They currently have a $1,000.00 price target on the stock.

Summary

Google has stood the test of time. Its visionary leadership and innovation has kept it at the top of the technology industry. Google investors should not only anticipate a hefty sales boost from innovative products such as the new Google Glass, but can also feel comfortable that any fines which might be imposed will not deplete the incredible revenue from advertising it will continue to enjoy.


Bill Edson has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. 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!

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