Has Google Peaked?
A clear sign that a company is past its heyday is when it costs more and more to acquire each new customer. When that occurs the company may still hit record revenue year on year, but margins start to drop and profits fall, and companies become desperate and start flailing around, trying to expand into any possible direction that promises a return to the good old days.
Google may be hitting that mark right about now, with the company missing Wall Street's forecasts for its first quarter profit.
The search giant managed $2.3 billion profit on $8.6 billion, or $7.04 per share, up 17% from a year earlier.
Profit was however forecast to grow 20% YoY, leaving investors disappointed and Google’s shares 5% down in after hour trading. Even that is down from the heydays of 40% YoY growth.
"When you program investors to get used to 40% each quarter, that's your mark," said John Scherr, analyst at Whisper Number. "Investors aren't looking for half of that."
Google’s profit margin is expected to see further assault, with the company expecting to increase head count by 8% investigating new revenue opportunities, and also being forced to raise salaries by 10% in an attempt to retain staff eager to go to new pre-IPO darlings like Facebook and Twitter.
The company’s share price is now the same as it was in 2007 and saw a 9% decline since Eric Schmidt announced his resignation in January in favor of the unproven Larry Page.
"Google is between a growth stock and a value stock; no-man's land for stock investors," said Aaron Kessler, analyst at ThinkEquity.
The company is facing challenges on expansion from a number of fronts. Its search business is under successful assault by Bing, which has just hit 30% US market share. Its efforts to increase its lock on essential consumer data is under pressure from privacy advocates and anti-trust investigators in US and Europe, with their purchase of ITA currently seemingly conditional on not using the valuable data generated internally.
"Google's future ability to grow by acquiring companies is a worry," said Ken Sena, analyst at Evercore Partners.
The company is also no longer the number one destination on the Internet, with Facebook taking that crown easily, despite Google’s failed attempts to enter the social space with products like Wave and Buzz.
"Facebook is now the leader in Internet viewership, and generally, dollars follow share," said Michael Hickey, analyst at Janco Partners.
Sometimes, when a company has hit the massive heights Google has reached, the only way is down.
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