Google Headed Back Towards Average?
I don’t usually follow sponsored links when doing research (intentional ad blindness), but people are getting better at getting my attention. Mark Hines at Vestopia targeted GOOG and bragged via AdWords that he sold out at $741. Click and he’ll tell you why.
I had just had the conversation this morning that I felt bad for the folks that bought in at $747, GOOG’s high for the year, only to see it drop nearly $300 after a couple of bad reports. By “bad” I mean their 4Q report was great, just not as great as analysts had hoped, and comScore dropped a bomb earlier this week showing that CPC revenue was (gasp!) flat. Not in decline, just didn’t grow in January.
Cue Google’s stock plummeting to $467. Cue me being interested in an explanation of what is now great foresight. So I clicked.
And was immediately blocked with a free registration screen. Vestopia’s pretty slick. Luckily I was determined to get out of registering and finally found the X in the lower left corner. You almost got me Vestopia! Nice move. I cost you a referral but I’m writing about you in a widely-read publication, so we’ll call it even, okay?
Once I got to the post, sans-registration thank you, I found out that Hines makes some pretty darn good sense in an article written November 15, just after the avalanche was beginning. He cites an economic principle, known as “regression toward the mean,” for his good foresight. This principle relays a phenomenon that occurs with people with extreme test scores: they often don’t score as high the next time, and gradually work their way back to average.
(This was news to me since I, ahem, have remained excellent throughout my schooling—Is there really a world below 99th percentile? I wouldn’t know. Please send future attaboys to jmiller at webpronews.com.)
The point is, until now Google has had “freakishly high growth rates,” which could not be sustained forever. On top of being overdue for a market correction, Hines notes his discomfort with a company that invests more and more in areas away from its core competencies. In Google’s case, that core competency is paid search advertising.
“Google has openly demonstrated fear of flattening paid search advertising revenues via corporate strategy,” he writes. “Their VP of Business Operations wrote a book in 1998 which essentially outlines the "spaghetti against the wall" approach Google has taken to acquisition and development, and is clearly seen in the company’s most recent initiatives. Google’s OpenSocial and Open Handset Alliance initiatives have nothing to do with search and are very far from the company’s core competencies….I would rather see Google chasing opportunities closer to home.”
That “fear of flattening paid search advertising revenues” part was especially prescient, given that that very flattening sent stock spiraling this week. Of course, we may be singing a different tune once Google officially branches out and begins profiting (somehow) from its investments in fiber and wireless.