Google wobbles as its winning run may be over...
The are few people besides the Chairman of the US Federal Reserve who can make billions disappear with a few words, but when Google's finance director George Reyes stood in front of an audience of analysts last week his remarks immediately knocked 13 per cent off the stock market value of Google.
Google said that it expected "slowing growth", as it had completed its program to squeeze more advertising revenues from its core search engine functions.
Until this year analysts at the top investment banks had repeatedly underestimated Google's growth, which even during the last quarter of 2005 was 109% of revenue.
Google's advantage is that it knows something specific about what the individual is searching for, allowing targeted advertising.
Google's shares costs 85 times what will be paid in dividends. The average for the FTSE 100 is about 14 times ("P/E ratio"). The justification for such a high P/E ratio is that in the future Google will continue grow and its dividends will continue to increase.
In its search for growth, Google has even moved into radio and television advertising in order to squeeze more revenue out of its existing clients. Cookies - a piece of software that relays information on the user's behaviour - could be used to display relevant adverts.
The average internet user spends only five per cent of their time actually searching - the other 95 per cent is spent reading and emailing etc.. However, search engines such as MSN, Yahoo! And Google account for more than 40 per cent of internet advertisement spending, and it's a fair question to ask if this can be sustained.
The answer is that it's unlikely. With such an elevated share price, some analysts say the companies' value has become detached from the fundamentals; don't be surprised if there is a gradual - or sudden - correction of the Google share price in the not so distant future.
