Google: A Painful Question
August 21, 2010
Wow. In 2006, Google was at the top of its game. The company was unstoppable. Few people criticized the company. I did point out the weaknesses of the Google in my 2005 The Google Legacy, but not too many others saw much other than ad revenue in the Mountain View, California Math Club.
Push the fast forward arrow on your mental DVR or TiVo. Read “Kneale: Why Isn’t Google a $1,000 Stock by Now?” The goose confuses a snipe hunt with a snarky comment. You probably understand the difference. The $1,000 chase is the snipe hunt. The title is the snarky thing.
This headline four years ago would not express how analysts and pundits thought about Google. Today, not only is the headline possible, it’s asking a reasonable question. When BearStearns went down the drain overnight in April 2008, the target was $585 or something in that neighborhood. Today (August 19, 2010) GOOG is down another 14 points to $467. Geese usually possess feathers, not shares in publicly traded companies. But even for an addled goose, the difference between the 2008 target and today’s stock price is interesting.
Here’s what the CNBC story said:
The Dow, soaring off the lows of March 2009, still is down 26 percent from its high in October ’07; Google stubbornly remains 35 percent below the high it reached the same month. Do investors have it wrong—or is Google itself doing something wrong? My answer would be . . . yes. By sheer numbers a higher price should apply to the world’s dominant search engine on a global network that, in a few years, could link a trillion devices. In three years since hitting that high, Google has doubled revenue, almost doubled already-prodigious profits, more than doubled its cash on hand (to $30 billion!) and doubled its total assets. It’s not enough.
What’s this mean for search? My observations:
- Not much. Search is in a transitional condition, and I am not sure that Web search will fare much better than the command line style searching that dominated in the 1980s. Sure, it will be around, but it is for specialists, not the consumer user.
- New competition. I don’t think Google has been able to suppress innovation. In fact, Google caused competitors to find ways to go where Google was not a factor. The best example is the Facebook service. Sure, Facebook might tank, but right now, the Google looks more like an annoyed teenager than a world beater in my opinion.
- New business models. I have a hunch the freneticism of Googlers is directly related to a real need to find major new revenue streams. Online ads are still a good business but that pesky Facebook can deliver targeting. With Microsoft and Yahoo, I can be certain that Google will have to respond to whatever deals this unlikely team will concoct.
Forget these points. Focus on the headline. That say much about what’s happening. Google is not a $1,000 stock and, if the present trends continue, Google may have a tough time getting back its 2006 flash.
Stephen E Arnold, August 21, 2010
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