Google tanks, but don't worry
Posted
Mar 04 2008, 03:24 PM
by
Kim Peterson
The Google freefall hit a notable mark today: its shares are trading lower than where they ended 2006. Shares slid as low as $435.78, but closed today at $444.60. That's down by a third since November; the company's market cap has dropped during that time to $140 billion from $232 billion.
Give Intel some of the blame. The chipmaker lowered its Q1 profit margin forecast, and when Intel does that it drags the whole tech sector down. There was also news today that one of Google's top sales execs is jumping ship for social-networking darling Facebook.
But bigger issues are felling Google -- concerns about slowing revenue and profit growth, and about the economy affecting Google's paid click business. A report out last week by research firm ComScore showed a 7% drop in the number of times people clicked on Google's advertising links in January. The number of paid clicks per Google search query fell by 8%.
That could reflect "a weaker buying appetite" among Web users, ComScore said. But ComScore analysts said in a blog post that the data resulted from Google's own "quality initiatives" and may not point to a weak Q1 outlook for Google. And one month doesn't make a whole quarter. Still, the report was enough to cast some doubts about Google's performance.
To make matters more confusing, a new report out by search inventory buyer SearchIgnite says Google's paid clicks jumped 46% in the first 45 days of this year compared to 2007, and that ad revenue rose 40%.
I'm not worried about a Google meltdown. The company is still spending money like crazy: building data centers all over the world, acquiring startups, eyeing a company that floats balloons into the air, building an undersea cable. Its R&D spending hit 13% of revenue last year. According to Google's last 10-K, its property and equipment assets grew to $4 billion in 2007 from $2.4 billion the year before. And don't forget that Google is still hiring like nobody's business.
Google's initiatives are vast and expensive, and the company can rein in spending if it needs to. Keep an eye on CAPEX and free cash flow this year: those numbers will say a lot about where Google is headed.
