5 reason to sell Google?

07/01/09 - 09:16 AM EDT

GOOG , NFLX , VG , VZ , T , YHOO , MSFT Scott Moritz

(Bilibala's comments in purple)

Google (GOOG Quote) CFO Pat Pichette told investors at a Credit Suisse tech conference June 9 that the company is working on "big, complicated problems, building solutions for decades."

The message, while grand, didn't exactly answer a more immediate question among shareholders: How is Google going to get business growing again?

=> I agree. All investors ask the same question, not just to Google, but all corporation that mature to certain size will have challenge in continue growth.

The recession stalled the Internet search industry and handed Google its first ever sequential sales decline last quarter. The cool-down ended a long, prosperous run for the search shop, and it may mark the end of the era of Google's ever-expanding dominance.

=> Sorry, the 3% decline in revenue from 4q08 to 1q09 is mainly due to US dollar drop, if currency neutral, the revenue is in fact 2.2% higher than 4q08.

=> I don't understand why as an analyst will give misleading advise based on misleading info.

That doesn't mean Google won't continue to have the biggest tent in the Internet advertising show, nor will it soon start dismantling its vast Web works. But Google's greatest growth sources are sputtering, and other ventures aren't picking up the slack.

Five reasons to sell Google:

Search volume has slumped. For years, the number of searches has grown dramatically. Now, it's flat. As more and more information being posted on the interest, it become more and more important to "Google" the accurate and matching information, the growth will continue.

New users are drying up. Now that everyone "Googles," where are the new searchers coming from? Similar as above

Market share is flat. Google has 65% of the search business, says comScore, but that hasn't varied much in the past three quarters. That's right!! On the other hand, Youtube is starting to make $$, mobile search (with the powerful bargaining deal search feature), and power saving plan will help Google to generate new revenue in future.

The recession has curbed international growth. I don't think so, recession means 1) more people need to search info for fun or for job, 2) corporation will cut traditional adv and turn to online adv

Ad pricing has stopped increasing. That's true, but less is more.

Google booked $21.8 billion in revenue last year, and 97% of that came from Internet ads. Google has mastered the art and science of search ads. It gets paid a portion of money when users click on one of its advertisers' ads, and it also gets paid by the number of impressions or number of times it places ads on Web sites.

Search ads are a wonderful trick, but it's still only one trick, and Google has not had any breakthrough success in other areas beyond search. YouTube, for example, continues to be a popular service and Google still hasn't found a way to make money from it. By some estimates, Google loses between $200 million to $500 million a year on the video site.

=> I agree, if we ignore those future market potential. Whether those business will make $$ or not, will create uncertainty on the company's future growth.

Google's smartphone software venture Android has enormous potential, that potential is still much bigger than the current Android reality.

Earlier this year, Google took aim at Netflix (NFLX Quote) and online video outfits like Hulu by adding a premium video offering called Google Shows. The programs and movies have brief ads, but the service hasn't really caught on.

Also this year, Google introduced an Internet calling service dubbed Google Voice, a cheap phone offering to rival eBay's Skype and other voice-over-the-net shops like Vonage (VG Quote). The service threatened to further erode the landline business at telcos like Verizon (VZ Quote) and AT&T (T Quote) and curb the growth of calling services at cable shops like Comcast (CMCSA Quote), Time Warner Cable (TWC Quote) and Cablevision (CVC Quote).

So far, however, Google Voice's success has been modest at best.

Meanwhile, No. 2 Internet shop Yahoo! (YHOO Quote) has been holding steady on search as new chief Carol Bartz puts her imprint on the company's structure and business focus. Yahoo! has 20% of the search market, a remarkably resilient share considering the year-long turmoil at the company as it fended off a hostile Microsoft (MSFT Quote) takeover.

Bartz has vowed to improve Yahoo!'s Web sites like its homepage, sports and finance, to help foster user growth, and she's said she wants to use search to help tailor display ads to user interests. Google, on the other hand, has its own display ad business -- basically the DoubleClick outfit it bought last year -- but it has yet to pay off.

And, not to be left out, Microsoft introduced its third effort at search this month. The site, called Bing, has attracted curious users and even gained fans who seem to be eager to find alternatives to Google.

=> I like Bing's video search feature (provide sounds when my pointer point onto one clip) and its historical search record on the side. But in terms of search, it still has a long way to improve. I can't search as many info as Google does.

Not only does Google need to defend its stagnant search business, but it also needs to find a new growth plan.

But don't expect the company to tap its $17.8 billion bank account. As CEO Eric Schmidt told analysts on the company's first-quarter earnings call: "Cash is not burning a hole in our pocket."

=> I like Google's improvement in cost management after they hired the new CFO from Bell Canada. That should generate 5-10% growth in EPS from the coming 2 years.