I’m sure everyone is aware of the blockbuster scandal that developed when whistle blower Edward Snowden released information regarding phone calls, emails, and text messages being monitored and recorded by the government. Initially, the media blamed the government, but shortly thereafter, the companies themselves became the primary target.
The war of transparency
I wrote a piece several days ago explaining that these companies’ biggest fear should be their reputation. At the time, they had given very brief statements, but a war has erupted as to which company has been/is the most transparent. Several companies have issued statements releasing numbers, approved by the feds, which show approximately how many of its users actually had their privacy surrendered.
Before moving on, I must ask a simple question. “When did the government become so large that companies have to seek their permission to inform its clients of privacy breaches?” Also, why did the government “allow” these companies to only release aggregate numbers of total U.S. data requests?
Here is my point. If companies want to be transparent, shouldn’t they be allowed to be? Microsoft Corporation (NASDAQ:MSFT)’s deputy general counsel, John Frank, said this: “This only impacts a tiny fraction of Microsoft’s global customer base. Transparency alone may not be enough to restore public confidence, but it’s a great place to start.”
The numbers
A quick glance at the figures below show these aggregate numbers of data requests from the government to these companies.
Facebook Inc (NASDAQ:FB) : 9,000 – 10,000 data requests spanning the six months before December 31, 2012. These requests contained information from between 18,000 and 19,000 accounts.
Microsoft Corporation (NASDAQ:MSFT): Between 6,000 and 7,000 data requests including information on between 31,000 and 32,000 consumer accounts.
Apple Inc. (NASDAQ:AAPL) : From Dec. 1, 2012, to May 31, 2013, it received between 4,000 and 5,000 requests, related to 9,000 – 10,000 accounts.
Yahoo! Inc. (NASDAQ:YHOO) : Received between 12,000 and 13,000 requests.
What’s at stake?
My answer hasn’t changed, and is really quite simple. Reputation. I don’t think these companies have willingly thrown client information into the hands of anyone illegally. They have done what they can to provide safe keeping of their users’ records, but the outcome wasn’t what they hoped for.
Apple Inc. (NASDAQ:AAPL) might have done more to scorch this blazing fire than any other company has done for its customers. Apple Inc. (NASDAQ:AAPL) claims it encrypts iMessages and Facetime so that no one can, except the sender and receiver of the message, can view them. Apple claims that not even they can view these conversations.
They saying is still true, “It takes years to build a reputation and only seconds to destroy it.” You better believe these companies are doing everything they can to protect what they have spent decades building.
Performance
How have these companies performed since the news of this scandal? It’s been less than two weeks, but have their stocks really been affected? The graph below shows how each of these companies have performed.
Valuation
Most of these companies are long tenured companies with good track records. However, this is not the case for Facebook Inc (NASDAQ:FB). They are young, experienced one of the worst IPO’s in recent memory, and have faced privacy issues for quite some time. There is good news for Facebook, despite its dismal valuation metrics. From 2010, the company has seen revenues increase 258% and capital expenditures soar 422%. Add that to their increased activity in the mobile world, and the company appears to be headed in the right direction.
As for the other three companies, Apple Inc. (NASDAQ:AAPL), Microsoft, and Yahoo! Inc. (NASDAQ:YHOO) have free cash flow yields of 10.9%, 9.4%, and -2.9% respectively. Yahoo! has struggled to find free cash flow the past two years, probably in large part to Google Inc (NASDAQ:GOOG)’s dominance. Yahoo! does offer an impressive earnings yield of 12.9%, while Apple and Microsoft are at 9.7% and 5.5% respectively. Microsoft’s P/E is not exactly what investors are generally looking for (18.1), but Apple Inc. (NASDAQ:AAPL)’s is more respectable at 10.3. Yahoo! again wins this competition with a P/E of just 7.7.
Be at ease?
If investors are to fear anyone, I don’t think it should be these companies. It appears as if they are have made every attempt to not be a ‘government stooge.’ If people are going to fear, fear the ones pushing the law. If their only defense is, “It was legal,” should we be concerned about morals? That’s up to you.
The Foolish bottom line
It doesn’t appear that any of these companies willingly release our information for the sole purpose of entertainment. With their reputations at stake, these companies probably fear the government more than anything right now. They will likely take whatever steps necessary to ensure users that their privacy is not being infringed upon. These companies may actually benefit from the scandal, if they can prove their loyalty to the customers they serve.
Tyler Wofford has no position in any stocks mentioned. The Motley Fool recommends Apple and Facebook. The Motley Fool owns shares of Apple, Facebook, and Microsoft.
The article Are Apple and Others ‘Government Stooges’? originally appeared on Fool.com and is written by Tyler Wofford.
Tyler is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
