Google Warns Data Privacy Changes Could Hurt Its Business

(Bloomberg) -- Google parent Alphabet Inc. warned that its business may be damaged by changing data privacy practices, new digital advertising polices and software bugs that leak user information.

The company filed its annual report on Tuesday and added language that suggests it is adjusting to stepped up regulatory scrutiny and evolving consumer attitudes toward data and privacy online.

“Changes to our data privacy practices, as well as changes to third-party advertising policies or practices may affect the type of ads and/or manner of advertising that we are able to provide which could have an adverse effect on our business,” the company wrote in the filing. “If we do not provide superior value or deliver advertisements efficiently and competitively, our reputation could be affected, we could see a decrease in revenue from advertisers and/or experience other adverse effects to our business.”

As consumers and politicians re-evaluate the data-collecting business models of companies like Google and Facebook Inc., the chance of tough regulations that undercut key revenue streams is increasing. To date, Google has mostly faced fines in Europe that it has been able to pay with its massive cash hoard, but some privacy advocates and those concerned with the company’s sheer size are pushing for harsher policies.

The internet giant has warned about stricter regulation and potential fines in the past. And regulatory filings like Tuesday’s annual report are often filled with boilerplate descriptions of risk so companies aren’t sued by investors if something actually goes wrong. Still, when new language appears, investors and analysts take note.

Another addition to Alphabet’s latest filing warns about software errors. "Bugs or defects in our products and services have occurred and may occur in the future, or our security measures could be breached, resulting in the improper use and/or disclosure of user data," the company wrote.

Last year, Google found a software glitch in its Google Plus social network that could have exposed the personal data of as many as half a million people. The company decided to shut the service soon after.

Alphabet also updated its warning about an expansion into non-advertising businesses like cloud services and consumer hardware.

"Due to these factors and the evolving nature of our business, our historical revenue growth rate and historical operating margin may not be indicative of our future performance," it wrote.

The company reported thinner fourth-quarter profit margins late Monday as the internet giant spend heavily to expand its cloud and YouTube businesses.