After climbing for a year and a half, Google shares fell 8.5 percent on Friday to $399.46 a share. It was the largest one-day percentage drop for the company and the highest volume--more than 41 million trades--since Aug. 18, 2004, when the search giant went public.
Although the move came amid a broad market decline, Google's share drop may be related to news on Thursday that Google is challenging a U.S. Department of Justice request for Web search data. While Yahoo, AOL and MSN have complied with a subpoena to provide information on random Web searches and Web sites indexed, Google said "no."
In a research report titled: "Confusion from DOJ issues creates buying opportunity for Google," WR Hambrecht recommended that investors take advantage of the drop to buy shares.
"We believe the market will react negatively to this news, decreasing Google's share price," the note said. "Ultimately, we believe Google's leadership position, resisting compliance while their competitors have bowed to government pressure, will bode well with its user base. Thus, we believe the company will not experience declines in traffic or subsequent advertising revenue short-term and will continue on plan."
The government is trying to resurrect the 1998 Child Online Protection Act, which would make it a crime for commercial Web sites to post material that could be deemed harmful if minors came across it, such as pornography. The administration wants the information to help bolster its argument that Web filtering software is ineffective.
Google contends that the government's request for information--1 million random Web addresses indexed by the search engine and all the keywords used in searches for a specified one-week period--is overreaching and too broad. None of the information sought could be traced back to any individual users.
Privacy advocates applauded Google's action, saying that while the government's subpoena covers Web search data that is not personally identifiable, future requests could go further and invade Web surfers' privacy.
However, they also say that by keeping all that data in one place, Google and the other search engines are, in effect, tempting the government with a huge honey pot of information that overzealous officials will target.
The case is a precedent in that it is the first public confirmation that the privacy concerns are legitimate. It also underscores the dilemma of how peoples' privacy is increasingly at risk as they conduct more and more of their lives online.