CNet Analyzes the Reasons Behind Google’s Decline: Greed and Overreach
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Is Google a Deflating Bubble? Source: AP |
The “star” Google has lost a significant amount of its luster following this commentary. For the first time, Google’s stock price fell below the $400 mark, dropping to $380, which represents a 13% decrease from the previous trading day.
The Story Unfolds
During a seminar at Merrill Lynch, Google’s CFO George Reyes announced that the growth rate of the world’s leading search engine is slowing down, and the efforts to profit from placing ads within search results will yield fewer results in the future.
The reason is that consumers have become aware of the “paid search” tactic, leading advertisers to lose interest compared to before. As a natural consequence, growth can only arise from other organic factors, such as an increase in the number of search queries.
Mr. Reyes’s speech was streamed live over the Internet, and the full transcript was published on Google’s website. Prior to this, Google had also submitted a filing to the U.S. Securities and Exchange Commission, stating that “our revenue growth rate is steadily declining over time, and this condition will certainly continue, as it is very difficult to maintain a high growth rate when the company’s revenue has reached a threshold.”
Google’s stock experienced a record drop after the company reported fourth-quarter financial results that fell far short of Wall Street’s expectations. Since going public in August 2004, Google’s stock price had quadrupled to $475 in mid-January. However, that figure has now dwindled to around $380, which means a 25% loss in value due to fierce competition and various other subjective factors.
Not only has Google suffered, but the commentary has also adversely impacted the entire Internet industry. eBay lost 3% of its value, Yahoo 2%, and Amazon 1.5%.
Reviewing the Records
Now, the only thing on everyone’s mind is how rapidly Google will continue to decline. “Everyone understands that when a threshold is reached, everything begins to go downhill. The only question is how far it will drop and whether it will plummet significantly this year,” analyst Philip Remek commented.
Google claims they are still doing very well, but many believe that their somewhat “overblown” growth is about to deflate. The CFO’s comments are not surprising if you have been following analyses and insights on CNET for a long time. Let’s recap this journey:
– The First Missed Target: Google’s stock fell more than 10% after the company failed to meet revenue targets in the fourth quarter last month. This was the first time Google missed a target since going public in August 2004.
– Over-reliance on Online Advertising: From AdWords integrated into search results to direct ads on websites and ads embedded in Gmail, nearly all of Google’s revenue comes from advertising. Yahoo and Microsoft have been probing this Achilles’ heel of Google with a variety of competitive services.
– Legal Challenges from the U.S. Department of Justice: Google’s stock continued to waver at the end of January as investors feared the company would become embroiled in a costly legal battle with the U.S. government over “customer privacy” issues.
– Copyright Disputes: Last week, Google was found guilty of copyright infringement by a federal court for displaying thumbnails from an xxx website.
– Digital Library Controversy: Google is also facing lawsuits over its project to include millions of books in its search catalog.
– Mass Hiring: Google is expanding at a staggering pace. According to Reyes, the company hires between 50-60 people each week.
Tian Yi
