I’m going to attempt something a little odd today, Fools. Even though Google Inc (NASDAQ:GOOG) makes up 7.5% of my real-life holdings, and I recently called Google stock a “must-own” position, I’m going to be giving you three reasons to consider selling the stock today.
Why am I doing this?
Recently, Nobel Prize winner Daniel Kahneman visited Fool headquarters in Virginia. While visiting, he talked about how a number of different biases can lead us to believe we can predict the future with relative certainty. In reality, he argued, we’re just deluding ourselves.
It got me to thinking about how I don’t write enough about the risks of owning the stocks I own. So although I don’t plan on selling my Google Inc (NASDAQ:GOOG) stock anytime soon, I think it’s healthy for me to practice and model this behavior.
1. It’s all about the ads
Google has its hand in a dizzying array of products beyond its core search engine: YouTube, Android, Gmail, and Chrome, to name a few. But at its financial core, Google Inc (NASDAQ:GOOG) is still just an advertiser. In 2012, 95% of all revenue came from ads placed on either its websites, or its network partner sites.
That presents three distinct risks for those holding Google stock. The first is that any macroeconomic downturn is likely to cause businesses to either spend less on Google Inc (NASDAQ:GOOG) advertising, or abandon it altogether in favor of other forms of advertising.
The second risk associated with this business model is that ads delivered via mobile devices generate less revenue per click than those delivered via desktop devices. If you think about it, this makes a lot of sense. Ads on a big desktop screen are much larger and likely to be seen and clicked than tiny ads that show up on smartphones or tablets.
Finally, there’s the risk of the erosion of Google Inc (NASDAQ:GOOG)’s core search market. One reason businesses are willing to pay for Google’s ads is that Google is able to tailor the ads to the right viewers, thanks to the massive amount of data it has collected on users. If people start using specific non-Google apps on mobile devices to search the Internet, Google will lose this data edge, and businesses won’t be willing to pay as much for ads.
2. Protecting privacy and a brand
Google Inc (NASDAQ:GOOG) is serious about privacy, and it had better be. Other than Facebook Inc (NASDAQ:FB), it’s arguable that no other company in the world has amassed nearly as much data on individuals as Google has.
Google Inc (NASDAQ:GOOG) publishes a Transparency Report that details just how many requests it receives for information or removal of information. Though defamation is the No. 1 reason for such requests, privacy and security, as well as government criticism, are among the top five reasons for such requests.
Google has already shown it has a backbone in this arena, refusing to abide by communist China’s demands. That stance led Google to back out of most Chinese operations, ceding the world’s largest Internet market to homegrown Baidu.com, Inc. (ADR) (NASDAQ:BIDU).
But should it come to light that Google Inc (NASDAQ:GOOG), whether by its own choice or because of government coercion, has provided sensitive details to authorities, it could significantly hurt the company’s brand and bring searches conducted on its site to a screeching halt.
3. Control issues
“This is not a democracy; it’s a dictatorship.” That’s one of my favorite lines from Remember the Titans. In it, the head coach, played by Denzel Washington, is reminding the players that his authority is absolute.