Google Hits Privacy Issues In Europe!

  • Google's EU privacy regulations may not be limited to that region.
  • DuckDuckGo, a search engine that doesn't track users is growing.
  • Google remains attractive at its current valuations.

Google Hits Privacy Issues In Europe

A Spanish gentleman has been at the centre of Google’s (NASDAQ:GOOG) worries lately. After the European Commission’s 2012 proposal that the “right to be forgotten” be given to people, the issue resurfaced with a Spanish citizen’s request to Google to take down a link. Google has lost the battle which was escalated to the Court of Justice of the European Union (ECJ), and has set up a redressal mechanism to deal with take down requests. The question is, how will this impact Google’s financials and its business?

As an immediate redressal mechanism, Google has come out with a form that can be used by those in the EU to request takedowns of the URLs they want removed. Once a link is removed, a disclosure will appear where search listings have been removed. Further, the links will only be removed in EU versions of Google search.

The EU Court ruling is not one of the kind

The problem arises from the fact that this instance is not an exception. Earlier this year, a German court ordered Google to block search results in Germany that led to photos of an event involving Max Mosely, a former chief of Formula One governing body FIA. The US also recently passed a rule that enables the deletion of content posted by minors, upon request. The rule is scheduled to come into force in 2015.

Further, in this case, the criteria set out for filtering data leaves room for subjectivity and debate. The EU court’s stand is that the individual’s privacy infringement outweighed public interest for the content in question. The ruling applies to ordinary people and not to public figures since information pertaining to the latter would be of interest to the public. So, companies like Google will have to develop a criteria to distinguish between public figures or celebrities and private individuals or common people, and the parameters are likely to be debatable.

How will the ruling impact Google?

There will definitely be costs associated with accepting, sorting, reviewing and honouring/dismissing these take down requests. It may not sound all that difficult, but it is quite an ominous task for an entity like Google which handles humungous amounts of information and search queries on the internet. Google currently processes about 90% of the search queries in Europe.

The ruling opens up the possibility of curbs on the data/information about users that Google possesses and could hit its revenue if that information is of monetary value to the company. User related data help advertisers’ targeting and ROI from ad spends apart. Further, in this age, information about the user is of paramount value, especially to a company like Google which forms the link between users and nearly every internet business under the sun.

Since Google does not officially declare what portion of its revenue it generates from Europe, it’s difficult to assess the impact if any. However, here’s the break up that’s available officially from Google’s SEC filings.

Google Geographical Revenue Break Up

2011

2012

2013

US

46%

46%

45%

UK

11%

11%

10%

Rest Of The World

43%

43%

45%

The disruptive minnow that wants to take on Google

The recent developments have turned the spotlight onto DuckDuckGo, a search engine that promises not to track user data and yet, deliver competent search results. The company believes that not tracking users doesn’t hamper its ability to earn revenue. It believes that keywords and the ability to serve sponsored links alongside search listings can do the job. The search engine also plans to incorporate answers supplied by human beings.

DuckDuckGo has gained significant prominence since Edward Snowden leaked details about mass surveillance programmes in the US. The search engine still remains an insignificant entity in terms of numbers, serving 4.7 million users a day which is a far cry from Google’s 609 million users.(18,281 searches for Dec 2013 divided by 30)

We won’t so far as to bring out the David and Goliath analogy, but there’s promise in what DuckDuckGo claims to do, which is to protect privacy. Though Google’s all pervasive nature might have made life easier in some ways, nobody likes the feeling of potentially being stalked. Further, there’s always a looming concern about the potential intended/unintended abuse of internet dominance. So, it’s not surprising that DuckDuckGo now handles 3 times the search queries it did a year ago.

Google Valuation

The truth is that in spite of everything we’ve discussed, Google still reigns supreme in the internet search space. There are competitors both in the US and globally, however, it’ll be a while before another search engine comes close to threatening Google.

As far as the company’s financials are concerned, Google has averaged a Y/Y revenue growth of 24.5% over the past 8 quarters, with an average net profit margin of over 21% for the same period. We think Google has significant future growth potential as things stand.

Google currently trades at P/E and P/S multiples of 6.2 and 29 respectively, which is far more attractive when compared to companies like Twitter which trade at far higher valuations. We assign Google stock a ‘buy’ rating at its current valuations.

To see Google’s latest stock price movement, click here (NASDAQ:GOOG)

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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