A victim of its own success?

Marketplace Contributor Feb 1, 2007


SCOTT JAGOW: Here’s how high Google has set the bar for itself: Yesterday, the company said fourth quarter profits nearly tripled. The per-share numbers far exceeded Wall Street’s expectations. But they weren’t quite as phenomenal as we’ve seen from Google before, so overnight the company’s stock dropped almost $7, although it’s starting to sneak back up a little this morning. Janet Babin joins us from our Innovations Desk at North Carolina Public Radio. Janet, how are analysts explaining this?

JANET BABIN: Well I think analysts are concerned about Google’s future. A few things happened, although it was undoubtedly a great quarter, no doubt about that, the company’s gross margin declined. So basically it looks like Google might have to spend more money to generate more revenues in the future.

JAGOW: Where does Google go from here? What are the issues it’ll face in the next couple years?

BABIN: Over time, they’re going to be paying out a greater percentage of their revenues to their advertising partners and you know if your partnering with other companies and you have to pay them more money over time, it’s not going to be good for your long-term financials. Also I spoke to Kevin Heisler at Jupiter Research and he thinks Google might be a victim of its own success. It’s so easy to find stuff on Google’s search that you’re not spending as much time as you used to on the site so fewer people are actually clicking on those advertisers.

JAGOW: Well Janet as far as the stock price goes, it’s already almost $500. Where are these analysts expecting it to go from here?

BABIN: Right. I think most people believe that over time there is the possibility of course that it’s going to increase again, but returning to [Scott] Kessler at Standard & Poor’s, he thinks that this is really a tired stock and we’re not going to see much movement.

JAGOW: OK Janet thanks a lot.

BABIN: Thank you.

JAGOW: Janet Babin from our Innovations Desk at North Carolina Public Radio.

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