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Friday, July 21, 2006

Widely Traded 48 Hour Clock: Google, The Unloved


Who would argue that Google's results for the last quarter were anything other than spectacular? Now, insiders have a window opening for selling next Monday. And, they have been selling, But, still. Beyond that, today is the options expiration date, which can drive a stock toward its closest strike prices. But, still.

How about those headlines:

Google Profit Shows It's Internet LeaderAP (Fri 9:45am)

Google 2Q Earnings Surpass ExpectationsAP (Thu 10:20pm)

[$$] Google's Earnings and Revenue Surgeat The Wall Street Journal Online (Thu 9:29pm)

Google's Earnings Shatter Forecasts With 83% IncreaseInvestor's Business Daily (Thu 7:00pm)

Google CEO sees no hurdles to its businessat Reuters (Thu 5:13pm)

Oddly enough, no one cares. Google's stock is down 2% to $380, well below its 52-week high of $475.11.

Google's shares of the search market is now almost 45% in the US, which leaves Yahoo! and Microsoft in distant second and third places, respectively. The number of ads placed on Google's search pages was up 82% over last year.

Google's sales rose 77% to $2.46 billion, and earnings hit $721 million, a 29% margin.

The unspoken issue with Google remains the same. Google will spend $1.2 billion on R&D this year. The company's capital expenditures continue to grow. But, what does Google have to show for it other than improved search technology? At some point the chair has to have more than one leg.

Until Google demonstrates that one of its new, expensive initiatives like catalog search or new online payment program, the stock is not likely to move much. Wall Street wants to see more than one rabbit come out of the hat. It has GMail, it has Froogle, it has Google Finance, it has the Book search, and will even have Google Health down the road. The company is the dominator and leader in search and that is undeniable. It is going to take untold dollars for them to lead these other initiatives in a manner other than a "Me Too" product, so until these get adequately monetized shareholders may start to demand more than just the search behemoth status.

Google currently has a $115+ billion market capitalization rate. We will no doubt have some new projections from First Call by mid-Next Week, but as of now the street is expecting Fiscal Year Dec-2006 to have $9.52 EPS and revenues of just under $7 billion and expecting Fiscal Year Dec-2007 EPS at $12.65 and revenues a hair under $10 billion.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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