Google Stock Sinks on Slow Revenue Growth

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And the news keeps getting better and happier with each passing month  :)

"Tuesday, July 19, 2005 ISSUE #145
Mountain View-based Google handled 1.8 billion U.S. search requests last month,
giving it a 36.9 percent share of the market, according to comScore Networks.
Sunnyvale-based Yahoo ranked second with 1.5 billion US searches, or 30.4 per cent of
the market."

 "Friday, July 22, 2005
SAN FRANCISCO - Google Inc. shares continued to tumble Friday amid disappointment
over slowed revenue growth at the online search engine leader even as second-quarter
profit more than quadrupled.
Shares of Google fell $7.52, or 2.4 percent, to $306.42 in early trading on the
Nasdaq Stock Market, a day after the Mountain View-based company reported earnings
climbed to $342.8 million, or $1.19 per share, from $79.1 million, or 30 cents per
share, at the same time last year.
If not for a charge to account for employee stock options issued before Google went
public 11 months ago, the earnings would have ranged between $1.29 and $1.35 per
share. That topped the mean estimate of $1.21 per share among analysts surveyed by
Thomson Financial.
Revenue for the period totaled $1.38 billion, nearly doubling from $700.2 million
last year. After subtracting the commissions that Google paid to other Web sites in
its advertising network, the revenue stood at $890 million, beating the Wall Street
estimate of $842 million, according to Thomson Financial.
Reflecting investor anticipation of a big quarter, Google's shares reached a new high
of $317.80 on Thursday before retreating slightly to finish at $313.94, up $1.94 for
the day. But then the shares dropped in extended trading.
The negative reaction harkened back to a few years ago when companies routinely
expected to deliver quarterly earnings aimed at a "whisper number" circulated among
money managers and other elite investors. The whisper number invariably was above the
estimates published by securities analysts.
"The market's expectations for Google's earnings clearly were above the analyst
estimates this time around," said American Technology Research analyst David Edwards.
Google's stock also had become overheated in anticipation of a blowout quarter, said
Piper Jaffray analyst Safa Rashtchy. "The stock had been going up too much in the
last few days. It was becoming too much about a game of momentum. This quarter looked
fine to me. There was nothing that surprised me about the quarter or the way
investors reacted to it."
In an interview, Google's chief executive said he remained optimistic about the
company's prospects. "Business is going quite well," CEO Eric Schmidt said. "Things
aren't falling off a cliff."
Although Google's earnings and revenue continue to rise at a rapid clip, some of the
gains weren't quite as large as in recent quarters - something that often happens as
companies get bigger and the comparisons become tougher. For instance, in the first
quarter, Google's earnings surged to a more than sixfold improvement.
In another development that may have troubled investors, Google's second-quarter
revenue rose by 10 percent from the previous quarter. The sequential revenue growth
had ranged between 15 percent and 28 percent in the previous three quarters that
Google had reported as a publicly held company.
But the second quarter typically marks a financial slowdown for many Internet
companies that rely on heavy traffic like Google, because more people are spending
time away from their computers as the weather becomes warmer and the days grow
longer. The same dynamic seemed to affect Google's second quarter results last year,
when revenue increased just 7 percent from the preceding quarter.
Industry analysts believe the seasonal shift is one of the reasons that another
Internet bellwether, Yahoo Inc., merely matched analysts' expectations in its second
quarter, a performance that caused its stock to plummet earlier this week.
In a Thursday conference call with analysts, Google Chief Financial Officer George
Reyes told analysts he expected it be even more difficult for the company to maintain
its growth pace in the third quarter, and not just because people won't be in front
of computers as much during the summer.
Google believes its results during last year's third quarter were boosted by the
intense media coverage that surrounded its initial public offering of stock last
August. The publicity drew more traffic to Google's Web site, helping the company
make more money from the advertising links that it serves up with its search results.
That warning makes it unlikely analysts will raise their third quarter estimates for
Google, creating another drag on the stock, Edwards said.
But not everyone was discouraged. After reviewing Google's second-quarter results,
ThinkEquity Partners analyst John Tinker raised his price target for Google's shares
to $350, up from $330.
Google is under immense pressure to produce extraordinary earnings growth because of
how high its stock has climbed since the company's IPO at $85 per share. Although
Google co-founders Larry Page and Sergey Brin have stressed they aren't interested in
meeting short-term expectations, the company still has surpassed analysts' estimates
in each quarter since the IPO.
The stellar showing has propelled Google's market value to nearly $90 billion in less
than seven years in business, turning hundreds of the company's 4,183 employees into
Schmidt doesn't believe a decline in Google's stock would demoralize its workers. "I
think it's best not to talk or think about the stock," he said. "Based on my
experience, if we execute over the long term, the stock will go up and if we screw
up, it will go down. You can't worry about the short-term swings.""

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