by C.G. Lynch

Google Isn’t Going Anywhere

Jul 20, 20073 mins
Enterprise Applications

Am I the only one who thinks investors were crazy to sell off Google stocks yesterday?  After announcing its second quarter earnings, the internet giant was chided by its impatient, knee-jerk Uncle Wall Street. Though Google posted a 28 percent increase in net revenue, heavier than expected spending on personnel, bonuses and acquisitions caused it to miss expectations.   

       But the glowering by Wall Street seems to be lingering paranoia, a residual effect of their poor investments during the, well, you-know-what period of the late 1990s and early 2000s.

      During after hours trading, many dissapointed investors operating more on visceral emotions than true economic prowess began to sell off many shares, dropping the search giant’s share value by 7 percent to a measly (ha – right!) $506 a share.

        In his conference call with analysts, Google CEO Eric Schmidt essentially said, in so many words, “our bad.” He attributed the slowed growth to increased hiring – the company hired 1,548 employees during the quarter, bringing the total number of employees to 13,786 – and a reevaluation of its bonus program. “We overspent against our own plan in the area of head count,” Schmidt said. “We will watch this closely going forward.”

        But as this post shows, people need to relax. Google isn’t going to suddenly fold. Even its competitors, like Yahoo!, which is experiencing more than its fair share of problems, will probably be around for awhile. Google still holds more than half of the search market and can only grow in new lines of business, like its software business that still is maturing and hasn’t yet dropped much to the bottom line. This CIO piece speculated that its enterprise apps probably only account for 1 percent of its revenue (see page 5). But it’s hard to argue that division won’t grow as Software as a Service (SaaS) gains more traction with large enterprises.

    Despite what some on Wall Street want to think, Google isn’t some hot-headed, free-wheeling teenager that thinks it’s immune from the same ups and downs as other publicly traded companies. Quite the contrary, it’s even hired a renowned economist from UC Berkeley to work with a team that constantly crunches the numbers and helps set a good long term policy. It seems he views Google as more of a normal business than investors might imagine.

    With all that said, perhaps some more transparency into its financials could help Google avoid reactionaries from running lose on Wall Street. Since it doesn’t really give much in the way of forecasts, analysts and investors are largely left to guess. More information into how much its Google Apps and other new lines of business are dropping money to the bottom line would certainly help, as the company tries to show that it truly is more than just search.