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Summary:

Google shares recently fell as much as 67 percent from an all-time high in November of 2007. But while there is plenty of reason for concern in the short term, there are also signs that Google is growing slowly more integrated into many facets of our online experiences. So does that mean it’s time to buy Google shares?

googlestock2008Eric Schmidt is fond of saying it would take Google 300 years to achieve its goals. I always thought he must have been at least partly joking. The shelf life of Internet companies is short; it’s taken Yahoo and eBay little more than a decade to reach what appears to be their respective “best-if-used-by” dates.

And judging from the way investors have been treating Google’s stock, you’d think it was also on track to face an early downgrade from Internet giant to also-ran. After hitting an all-time high of $747.24 a share in November 2007, Google’s stock slid to as low as $247.30 a week ago — a 67-percent drop (the shares closed at $292.96 in a shortened trading day Friday). True, most stocks have suffered from widespread selling, but consider that rival Microsoft is down about 50 percent from its 2007 peak.

There is plenty of reason for concern in the short term. Google’s bread and butter is still online advertising, which is looking to be more vulnerable to a downturn than many initially thought. And it still hasn’t cultivated any rich revenue streams outside of search. Word of widespread contract worker cutbacks only add to that image of a giant on the ropes.

But there are signs that Google is growing slowly more integrated into many facets of our online experiences. Its market share in search expands slightly each month. Chrome is proving a bigger hit than the first reviews intimated. Google’s mail, chat, calendar, maps and feeds are becoming incrementally more useful. You may not be using all of them, but chances are you are using some of them more than you used to.

That’s because Google has been tweaking many of its far-flung offerings with new features and/or better performance. Not just Chrome, but video chat, and voice search on mobile devices. They don’t have to be perfect — and often fall short — they need to be just useful enough to steal our attention from a rival’s service.

Is Google making more money from these micro-innovations? Usually not. But they have a value that could last long after the next financial quarter. They foster loyalty, nibble up market share, and — most importantly — observe user interactions so that Google can be even more useful to you tomorrow.

The New York Times’ David Carr this week detected a larger pattern in all these micro-innovations. Confessing that he was at once seduced and creeped out by how useful Google’s programs were, he nonetheless concluded:

“Google’s Web platform, in all of its high-functioning glory, is its marketing.… If Google owns me, it’s probably because I am in favor of what works.”

When ad spending recovers, Google is going to have more ways to spread it around in front of us, and take up even more of our attention spans. But it’s not content with that, prodding its tentacles into other areas such as energy conservation. Schmidt recently spoke about the company’s early efforts to help make energy usage more efficient. Again, it’s not clear how Google would or could monetize it, but its influence in an area of changing demands is notable.

Does that make Google under $300 a bargain? In the long term, quite possibly. Remember when Google went public at $85 a share and people said its P/E of 58 was too high? Google’s 2008 P/E is now 18. And while Google’s profits are growing much more slowly, they are likely to be growing for years.

Google executives have long acted blasé about its stock price and investor obsessions like profit margins. Still, when a stock loses 67 percent of its value in a little more than a year, it has got to be worrisome for workers holding options. And so there may be a couple of stomach-churning years ahead for Google.

After that? The subtle moves Google has been making with an eye on long-term growth could lead to bigger payoffs for years to come. Maybe not 300 years, but certainly into the next decade or so at least.

  1. I will never buy a stock or any investment that does not issue a dividend. The SEC and the IRS have worked against the middle class by destroying the real value of an investment: earning a profit.

    Let these companies issue a REAL dividend annually. 6% or more. Then, if you want to earn more money in the future, buy more shares. It’s quite simple.

    Google is not a good deal at 18 P/E. In the technology market, stocks are not “buy and hold” forever. Companies can turn to garbage fast.

    Give me the old days of low P/E, high dividends, and the option for stock issuing if the company needs to expand infrastructure.

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  2. @ A.B. Dada: Unfortunately, this may not be a great era for dividends, either.

    http://www.bloomberg.com/apps/news?pid=20601087&sid=aKVN9wFDKavU&

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  3. Gents:

    I’m not sure that Google deserves the Microsoft-Award for cad-like behavior.

    Sure there’s been issues with email vulnerability, privacy issues etc. but they do seem to respond favorably when challenged – instead of digging in their heels year-on-year like Microsoft (when they thumbed their noses at the Justice Dept and European courts in anti-trust areas).

    Note how they willingly dropped their retention of address-bar key-stroke data down to 90 days.

    I’m sure there is still potential for abuse – but unless I’ve missed something – they seem willing to play ball when it counts.

    I could be wrong – but Google while occasionally reckless – just doesn’t seem to have the same level of sinister intentions and boorish behavior that MS has shown for so long.

    Rob

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  4. [...] from GigaOm Filed Under: Tech Tags: Microsoft·Yahoo Digg, Facebook, Email: Share This Buzz! Like this [...]

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  5. Just because something was once worth $750 doesn’t mean that’s what it’s really worth. 2007 was the peak of the web 2.0 boom and the economy was very inflated.

    You really sound like an over-bullish financial adviser on CNBC. This is exactly the type of greed that got us in this mess in the first place. You really should be careful about giving financial advice when you probably don’t know what you’re talking about.

    I think the reason why we’re in this mess right now is because too many people want to make money from their money. Partly because everyone’s in 401K’s, partly because we’re lazy and greedy. Also, past performance doesn’t dictate future performance. Just because the S&P averaged 20% per year in the 90’s doesn’t mean it’ll do it again. Those days of total American dominance are probably over – it’s a new world. Look at real estate, even the wise thought real estate would never depreciate.

    I think we all need to focus on “working” for our money, creating real value, and then saving most of it in insured accounts or very low-risk investments, then only invest what we can afford to lose. Not just buying stocks, and throwing money in a slot machine. If we all took this approach, internet stocks, real estate, oil futures, and commodities wouldn’t have shot up and crashed so quickly; and then grandmas, taxi cab drivers and tech bloggers wouldn’t be giving financial advice.

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  6. I had the luck to buy Google low and had the right advice on when to sell.
    I will probably buy GOOG again and wait for a new smartstops sign.
    Kevin you said: “Google’s stock slid to as low as $247.30 a week ago” and most of the people act as is it was a big surprise. Yes Kevin it did slid, but you were told it would: Take a look at smartstops, or google it :-)
    Then, we’ll re-open this topic in 3 or 6 months and re-discuss the result.

    Google is a giant with a very good potential: when was the last day you did NOT use Google?
    I use it everyday, 10 times a day. Google is here for a long time, but I will sell with no hesitations.

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  7. I think as Google grows, it will not be the same company any more. It is not Google’s fault, though but something that all smart startups face when they are no longer that – a startup. There have been startups before Google and they have all gone through this phase.

    Google search has done very well in Asia , but there are already alternative, especially in native languages ( Yandex in Russia and Baidu in China are number 1 in their countries). I come from India where Google is still dominant but with miniscule internet penetration , the search market stretches across a 10 year horizon in future. Infact, Google is already working very hard on Indic search.

    Bottomline – Growth is in Asia and it will not be easy for Google to fight local competition. Lets wait and watch.

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  8. Kevin Kelleher Sunday, November 30, 2008

    @Rob. Not sure if the piece says Google is cad-like. There is always the chance for abuse of private data, but people wouldn’t be using Google’s features so much if they didn’t trust the company at least a little.

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  9. Kevin Kelleher Sunday, November 30, 2008

    @Dave. Thanks for the 20/20 hindsight. Where were you when Google was at $748?

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