2006-03-02

Google Faces Challenge


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Google CFO comments send stock lower.

Google's meteoric rise could not last forever. As sexy as this company is, and as white hot as its growth has been, it won't conquer gravity.

CFO George Reyes' recent comments signal that reality is setting in.
"Clearly, our growth rates are slowing and you see that each and every quarter ... We're going to have to find other ways to monetize the business."
Google is now milking advertising for about as much as that stream can give. Problem is, the search giant has been, almost literally, a one-trick pony since its inception. Of their $4.2B in revenue for the first three quarters of this year, only $51M came from sources other than advertising. So, it's a challenge.

Unfortunately, there are investors involved. When shares that are earning $5.00 trade in the mid $300's, folks are bound to be edgy. When you buy at 70 times earnings something has you banking on the massive growth continuing. Can't blame Google for this. Prior to Reyes' remarks the company had been notoriously tight-lipped regarding financial projections.

Save for having to answer for inflated expectations, Google is primed to tackle this challenge. Their balance sheet is all-beef: No debt; very little intangible funky stuff; lots and lots of cash. And anyone who has ever used this thing called the internet knows that Google is everywhere. Name an application and they have an answer. Now they just need to figure out how to turn those answers into dollars.

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