PRISM: Should Tech & Social Media Investors Brace for Impact?
Bill is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The PRISM anti-terrorism program was created to give the government access to emails, videos, social media posts and just about every other bit of data a web user could provide in order to ‘combat terrorism.’ When the story broke on June 6 in the U.K’s Guardian and The Washington Post that nine companies handed over direct access to their servers to the National Security Agency, investors started to question whether the stock of these companies would take a hit, being embroiled in scandal and questions. But, based on trends and what I believe to be three very important yet overlooked factors, major consumer tech companies Apple (NASDAQ: AAPL), Google (NASDAQ: GOOG) and Facebook (NASDAQ: FB)(NASDAQ: FB) are unlikely to falter based on the leak.
We knew it was happening
The first reason these companies won’t budge is because we knew that this was happening already. President Obama stated in his defense of the NSA and its actions that under his predecessor, obtaining information would “help us prevent terrorist attacks." He also insisted on the importance of striking the balance between keeping the American people safe and concerns about privacy. Trade-offs are inevitable, however, as they are an irrefutable part of our post 9/11 life.
We also know that this entire process is flyspecked by the special court created by the 2008 Foreign Intelligence Surveillance Act, or FISA, which was most recently amended in December with little controversy or even media notice. Whether or not the Obama administration is conceding that we all knew surveillance of some kind was going on is one thing, but we do know that the administration is magnanimously offering a bit of clarification as to the whys and wherefores. The field known as "big data" is revolutionizing everything from retail to traffic patterns. Organizing and making sense of this raw material is now possible given advances in high-performance computing and storage capacity.
And that’s what the NSA is doing – collecting "metadata," nonspecific bits of information related to calls and other electronic communications received and sent. Investors should take note of this trend - companies which harness big data could have real potential for long-term growth. Facebook, already eying this trend, has implemented a program focused on teaching big data tools to its employees.
We don’t care
The second reason these companies are safe is because Wall Street and the majority of Americans are indifferent. First, as explained by Obama, the paradox of data-mining is that the more information the government collects the less of an intrusion it is. These data sets are so large that only algorithms can understand them.
Second, the information gathered were from increasingly social-tech companies. Facebook is a social networking site, where people post anything and everything about their own personal (and private) lives. Engagement with this platform presupposes that users are okay with everyone knowing their business.
Likewise, Google and Apple have made steps to make their programs more interconnected. Privacy policies aside, both companies know (and make users aware) that success lies in making all things communicate with all others in order to have everything at ones fingertips. Gmail, YouTube, iTunes, etc are all moving to put your personal life and habits ‘out there’ so you can access it anywhere you are.
In short, the things that people would point to as ‘infringements’ are the very reasons they make our lives easier and why we use them.
Your portfolio is fine
Finally, these companies are financially strong (or at least gaining strength). It is a funny, and very telling fact, but according to Google Trends the day after the PRISM story broke, users searching the internet were twice as interested in the search term “National Donut Day” as they were in “PRISM.”
Wall Street’s response to PRISM was equally nonplussed. Not a single one of the companies named by the leak as providing data to the NSA saw their stock take a hit. In fact, they all finished the day up, and Google added another $15 to its stock price. On Friday, June 7, the NASDAQ was up as a whole. As one day does not make a trend, let’s keep in mind that since mid-2011, Google has beaten the market by 54 percentage points.
In addition to that, holders of Apple's stock (those who have weathered the storm these last few months) may be receiving their long-awaited reward for additional reasons. Many analysts have tried to call the bottom in Apple since its fall from the peak of above $700 last September. Now, supporters are looking at a record-breaking stock-buyback program, an amazing valuation, a technical breakout in the stock chart and a ramp-up in the current uninspiring product cycle. The fact that Apple wasn’t phased by last week's news could be evidence of a turnaround. Some believe the stock is poised to rise at least 10% this summer to above $500.
Analysts expect Apple to generate $43.89 of earnings per share next year, up only 11% from this year’s forecast. This estimate also doesn’t factor in any product launches over the next few years and it need not be said that ‘Apple’ and ‘innovation’ go hand-in-hand. In recent sessions, the stock was up 4.5% to $446.30.
Google seems to be getting the nod from most analysts, seeing top-line growth padded by the Motorola acquisition, and organic growth consistently hitting double-digits in recent quarters. The company is reportedly finalizing a deal to purchase mobile-traffic app company Waze for just over $1 billion. The deal would keep Google ahead of Apple in the realm of mobile mapping. The stock is currently sitting at $880. Facebook is also seeing signs of life, slowly making its way to just over $24 per share.
According to Silicon Valley Business Journal, "On June 7, Facebook and Google again denied providing the government direct access to its servers, saying the only provide user data under applicable laws." Facebook is said to have received somewhere between 9,000 and 10,000 user data requests from federal, state and local authorities over the last six months.
At a recent shareholders meeting, Facebook CEO Mark Zuckerberg asked for investors to have patience when it comes to stock performance. Zuckerberg noted that Facebook is growing quickly in terms of mobile. He noted that roughly 30% of the company’s total revenue now comes from its mobile applications (compared to nearly zero last year).
Wall Street has spoken. The American people have shrugged. PRISM seems to be labeled as something to be tolerated, and nothing to worry about.
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Bill Edson has no position in any stocks mentioned. The Motley Fool recommends Apple, Facebook, and Google. The Motley Fool owns shares of Apple, Facebook, 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!