Google CEO tells investors not to worry about Europe's upcoming privacy rules

Key Points
  • On Alphabet's Q1 earnings call, two analysts asked Google CEO Sundar Pichai about the effect that Europe's new privacy rules, GDPR, will have on its business.
  • Pichai said that Google has been preparing for the changes for 18 months will be compliant when the regulations go into effect on May 25.
  • He also downplayed the importance that user data has on its cash-cow search business.
Google CEO Sundar Pichai
Simon Dawson | Bloomberg | Getty Images

CEO Sundar Pichai tried to quell investor fears over how Google's advertising business will be affected by Europe's upcoming privacy legislation during the company's Q1 earnings call.

The gist of his comments: Google is hyper-prepared and it will have little effect on its cash-cow search advertising business.

The General Data Protection Regulation, which is known as GDPR and is meant to give consumers more control of their data, will go into effect on May 25. Any company that breaches the new rules will be fined up to 4 percent of its annual global revenue.

"GDPR is a fairly new public topic, but for us it's not new," Pichai said. "We started working on GDPR compliance over 18 months ago and have been very, very engaged on it."

When RBC analyst Mark Mahaney asked him whether he thought the new rules would impact advertisers' targeting abilities, Pichai emphasized the fact that it still makes most of its money from search advertising, where the effect of personalization is minimal.

"First of all, it's important to understand that most of our ad business is search, where we rely on very limited information — essentially what is in the keywords — to show a relevant ad or product," Pichai said.

Google's properties revenue, which includes revenue from search as well as its other owned-sites like YouTube and Maps, makes up around 82.6 percent of its total advertising revenues.

But Pichai's answer skips over the effect that GDPR will have on the other 20 percent of its advertising revenue, which comes from its Network Members' properties.

Google Network Members' properties revenue largely comes from third-party sites that use its AdMob, AdSense or DoubleClick ad products to put ads on their websites. If a large number of European internet users opted out the ad targeting used in those tools, it could make them less useful for advertisers.

Overall, Pichai stressed that Google is "committed to meeting requirements" and doesn't expect GDPR to cause a material negative change.

"Overall, we think we will be able to [comply with GDPR] with a positive impact for users and publishers and advertisers, and so our business," Pichai said.

Analyst Gene Munster reacts to Alphabet earnings
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