Google's One-Trick Pony (GOOG)(MSFT)
Google is certainly a might machine. Revenue for the first quarter of 2006 rose to $2.254 billion from $1.257 a year earlier. Income from operations for the period was $743 million up from $443 million the year before. The company has about $9 billion in cash and marketable securities and a market capitalization of $119 billion.
However, the stock stands at about $390 now, which is where it was in November 2005. After a run to $470 in January and $440 in April, it has settled back quite a bit. Google's six month stock performance is below both the S&P 500 and the NASDAQ.
Perhaps the problem with the stock's performance is that, although Google has introduced a number of new services over the last year, advertising revenue is still 98% of the company's revenue. The balance comes from licenses of its web search technology.
In Google's 10-Q, the company says that it expects it growth rate to decline. It also expects margins to shrink. That being said, where will the future rapid growth come from at Google?
A look at the company's relatively new products does not immediately yield an answer to what Google's next killer product might be.
Google Earth works very well. But, it is free, and the revenue opportunity is unclear. Google Finance does not appear to have any source of revenue and is not nearly as good as the same free content from Yahoo!Finance or MSNMoney. Google Calendar has a number of nice features, but the revenue model seems to be missing. GMail and Blogger create the opportunity for Google to sell more text ads, but Blogger breaks down frequently, and GMail is also not as reliable as some other e-mail services.
The Google picture sharing and video sections are not special. There are a number of other services that provide both services, and Google seems to have only a modest share in these markets compared with companies like Photobucket, Flickr, and YourTube. The same is true with Google talk which has competition from Skype, AOL IM, Yahoo Messenger and a number of other services.
Google probably cannot build a new, strong revenue leg for its business by being in third of fourth place in a number of these markets. The company now faces the risks that Microsoft did many years ago when it had one set of products that produced virutally all of the cashflow. Microsoft finds itself in the position where that is still true today. For Google, free spreadsheet software is nice, but it doesn't feed the shareholders.
Douglas A. McIntrye can be reached at douglasamcintyre@gmail.com. He does not own stock in the companies he writes about.
However, the stock stands at about $390 now, which is where it was in November 2005. After a run to $470 in January and $440 in April, it has settled back quite a bit. Google's six month stock performance is below both the S&P 500 and the NASDAQ.
Perhaps the problem with the stock's performance is that, although Google has introduced a number of new services over the last year, advertising revenue is still 98% of the company's revenue. The balance comes from licenses of its web search technology.
In Google's 10-Q, the company says that it expects it growth rate to decline. It also expects margins to shrink. That being said, where will the future rapid growth come from at Google?
A look at the company's relatively new products does not immediately yield an answer to what Google's next killer product might be.
Google Earth works very well. But, it is free, and the revenue opportunity is unclear. Google Finance does not appear to have any source of revenue and is not nearly as good as the same free content from Yahoo!Finance or MSNMoney. Google Calendar has a number of nice features, but the revenue model seems to be missing. GMail and Blogger create the opportunity for Google to sell more text ads, but Blogger breaks down frequently, and GMail is also not as reliable as some other e-mail services.
The Google picture sharing and video sections are not special. There are a number of other services that provide both services, and Google seems to have only a modest share in these markets compared with companies like Photobucket, Flickr, and YourTube. The same is true with Google talk which has competition from Skype, AOL IM, Yahoo Messenger and a number of other services.
Google probably cannot build a new, strong revenue leg for its business by being in third of fourth place in a number of these markets. The company now faces the risks that Microsoft did many years ago when it had one set of products that produced virutally all of the cashflow. Microsoft finds itself in the position where that is still true today. For Google, free spreadsheet software is nice, but it doesn't feed the shareholders.
Douglas A. McIntrye can be reached at douglasamcintyre@gmail.com. He does not own stock in the companies he writes about.
posted by douglas mcintyre at 12:30 PM
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