Is Google under threat of being split up by EU legislation?
Google (GOOG, Financial)(GOOGL, Financial) may soon be facing a tidal wave of legislative opposition from the European Union to comply with data privacy laws. There are also concerns that Google is giving preferred status to its own products and services in Google search results in Europe. This has resulted in an avalanche of criticism being leveled at the search engine giant which controls an estimated 90% of Internet searches in Europe. Moving forward, it is going to be especially important for Google to get all its proverbial ducks in a row to protect the company from being broken up into two distinct entities. The European Parliament is considering separating the search engine component of the company from other parts of its business operations. Whether or not this is feasible, legal or even warranted is up for debate.
What is the Right to be Forgotten?
The Right to be Forgotten has gripped media headlines for quite some time. This court ruling came about in 2010 when a Spanish citizen leveled complaints against a newspaper with the National Data Protection Agency. He also made a complaint against Google Spain and Google Inc. The issue revolved around a property of his that had been repossessed, and was being displayed on Google search results. Even though the issue had been resolved, it still tarnished his name via search results. He wanted all traces of his history to be wiped from Google Inc and Google Spain, hence the Right to be Forgotten. The issue was forwarded to the Court of Justice of the European Union and the ruling was made on 13 May 2014. According to the EU court, it doesn't matter where the physical server of the company is located – Europe or the U.S.an  – it must abide with EU law.
Further, Google must comply with EU data protection laws and finally all individuals (under specific conditions) have the right to be forgotten and have all links and personal information about them removed from search engines like Google. According to the directive, search engines like Google will be forced to delete data when a specific request from an individual who has been affected is received. If a person wishes to have his/her data removed, that person will be allowed to request Google to erase all search links that lead to webpages about his/her data. There are all sorts of legal complexities, information and other features that Google will consider when receiving such requests. Regarding compliance from Google, it is still early days. Google already has established a system to handle these deletion requests. These include things like credit card numbers, images of signatures, Social Security numbers and the like. Google also has a system in place that deals with all copyright infringements and violations.
Can Europe break up Google?
Banc De Binary legal analysts say that it is unclear whether the European Parliament has the authority to break up an American company like Google. Likewise, several leading professors one of whom is the foremost authority on European antitrust law – Herbert Hovenkamp (law professor at University of Iowa) is uncertain. He believes that it would be an exceptionally costly undertaking, and Europeans would be affected by the quality of Google search results after the breakup, owing to the interdependence between Google products and Google answers. Another law professor from Boston University, Keith Hylton, agrees with Professor Hovenkamp. But he is of the opinion that Google would be wise to comply with European Parliament suggestions in this matter.
The aforementioned law professors agreed with the American FTC ruling that investigated Google and exonerated it from any wrongdoing. The scrutiny that Google has been coming under from European lawmakers has been going on for quite some time. EU authorities are concerned that Google is advancing its own agenda by way of its dominant market share. However, there is no comparison between what happened with Microsoft and what is presently happening with Google. Microsoft operating systems basically determine what you can and cannot do on your PC, laptop or smartphone. Google is free to use and people can switch freely between search engines at their leisure.
Is now the time to buy Google stock?
The overwhelming success of Google has brought on many challenges for the company. As discussed, European lawmakers are taking aim at the company, and everything that it is investing in. The success of Google in terms of investment in data centers, futuristic endeavors and self-propelled vehicles is unprecedented. However Google's share price fell to $525 from over $600 in September. During Q3 2014 Google's revenues climbed 20% – that's x5 the S&P 500 index growth for the quarter. Shares are currently trading at x18 expected profits for the next 4 quarters, while the broad market is trading at x16 for the same period. Over the next 4 or 5 years, Google’s earnings are projected to grow upwards of 18% per annum.
Consider that Google has almost $60 billion in net cash reserves. The company derives its strength from its Internet search dominance, with 60% global market share, and 90% market share in Europe. All other search engine providers account for no more than 10%. While Google’s click revenue dropped 8% in Q3 (as opposed to Q2), it still grew by 17%. Google was also experiencing increased ad clicks by way of mobile smartphones and devices, with lower sell through rates. The company's share price still remains on a strong uptrend on the NASDAQ, hovering between $500 and $600 per share for the latter half of 2013 and all of 2014.
The numbers speak volumes for Google: 45% of users spend most of their time on Internet and mobile, while the remaining balance spend time with TV, radio and print media. Customers between the ages of 18 and 24 spend far more time on the Internet than they do watching television, and this has a particularly positive effect on Google and websites that it runs. During Q3 2014 these websites accounted for $11.25 billion of Google's revenue which amounted to $16.52 billion. YouTube is bringing in incredible numbers for Google. YouTube currently has over 1 billion users who watch 6 billion hours’ worth of videos each and every month. The accounting firm Jefferies is of the opinion that YouTube will generate almost $6 billion on the mobile smartphones front; Google Play – the rival equivalent to the App Store – grew by 50% and generated quarterly profits of $1.84 billion. Consider that 2 years ago the revenues generated by Google Play were zero. Nowadays, it is the equivalent of YouTube. Google’s star power is boosted by wearable technology, high-speed Internet accessibility and purchase delivery. Combined, these markets could soar to $60 billion within the next 15 years. While net profits may be a little lower, the research and development costs have been soaring, which bodes well for the strategic positioning of Google. The company will see free cash rising 27% in 2015 and 26% in 2016.
The big question remains: What stands in Google's way? According to analysts, the unbundling of search engines like Google from various products and services the company offers could hurt the company in a big way. Google’s network revenues have been growing at a slower pace than its other businesses. Plus, Google pays its employees with Google stock which has the effect of diluting shareholder earnings by 2 percentage points annually. If Google stock continues to rise on its current trajectory, the stock will be priced around $630 in 2015. The big question is what effect the European Parliament will have on the company.
