Friday, July 18, 2008

How to Look at Google the Wrong Way

Google reported 2nd quarter earnings yesterday afternoon , meeting analyst estimates, however warnings from company execs prompted a pretty significant drop in GOOG stock. Shares of GOOG fell over 10 percent in after hours trading Thursday and continued to hold the decline today. Google chairman Eric Schmidt's description of the economy as "challenging", coupled with admissions of slower hiring at Google and decreased consumer click-throughs of ads, are being cited as common analyst concerns.

In a financial respect, some of the analyst concerns are warranted in the short term, but longer term they are not. It's also important to note that Google continues to lead our ever-emerging online experience even if they're not growing as rapidly as they were 6 months ago and if revenue looks different this quarter than it did last (when analysts were surprised at earnings and GOOG skyrocketed as a result). Importantly, there is no competition for Google in many of their continuing core business areas; they continue to set precedent as others follow.

As Schmidt noted in the conference call Google domestic business was "slower" due to the current economic situation, however non-domestic activity was rapidly accelerating. More and more of Google's business is in areas outside of the United States...areas like China (which will overtake the U.S. in numbers of Internet users sometime in the next 12 to 18 months). While analysts are marginally good at analyzing Google's earnings, they seem to be oblivious (at best) at understanding how it continues to shape user experience, preference, and behavior. These are the important, possibly intangible, assets. User search behavior, and a large part of Internet behavior and practice in the U.S. has been molded by Google for better or for worse. This will continue, in addition to Google's inroads into global markets. Forget the stock price decline (but do know Google wants to make money), look at Google's products and launch agenda(s)...they've got big plans for everyone. Few companies in any sector have the position to do such a thing when it comes to shaping user realities...which is what really matters.

2 comments:

Kirk said...

Interesting musings on Google. I was delighted to see recently that they've added "Walking" directions as an option on Google maps.

Dallas said...

This is interesting to note, I was unaware that GOOG stock had fallen in accordance with the rest of our depressed economy. It seems a little strange that the analysts have such a strong impact on the value of the stock, when, as you argue, it is impossible to predict the kind of turns and changes that will occur within the community of users which determine the growth and direction of Google's development. This is in part the direction of the Google enterprise, but it is always stressed against the background of usership. It always falls to the user to make the use(s) and potentially the profit margin.
It is impressive- the search monopoly that Google has, and how it has come about in that way. It is, simply, because it has the most impressively accurate and extensive search results. I remember when I first started using the internet and I used yahoo or dogpile, both were never that amazing- when my father introduced me to Google I would continue to toggle between the three of them (dogpile had fallen away so it was mostly Google vs Yahoo). Eventually i decided, after about two years, that yahoo was just not as good and as clean as Google, and have been with Google since.