THE GOOGLE INVESTOR: Google Needs To Innovate Or The Stock Is Hosed

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GOOG Hovering Around $560 the Past Two Weeks
GOOG shares closed Wednesday’s trading session at $563.54. After the hit the stock took when it pulled out of mainland China, GOOG has been hovering around the $560 mark for the past two weeks. GOOG trades at 18x 2010 EPS and 19x Enterprise Value / EBIT.  Potential near-term catalysts include the March quarter earnings release on April 15th; updates on changes to paid search results; Android adoption; and benchmarks surrounding newer initiatives (Wave, Chrome, Base, broadband network, etc.).  But the main problem remains that search is maturing, and the company has yet to develop a strong second growth engine.

Google Needs To “Shore Up Growth” Or Stock Will Seriously Suffer (Seeking Alpha)
Google’s market share in search has held steady. However at 71%, the only likely place that number can go is down. The China debacle hasn’t been good for the shares either. While not a material event right now, the exit will limit future growth in the world’s largest Internet market. Let’s also not forget Facebook, which has been gaining traction with its self-serve advertising product many Google advertisers have been using. Bottom line, the company needs to find areas for growth or we could have another Kodak or Xerox on our hands.

Google Search Market Share Holding Steady Above 70% In March (San Francisco Business Times)
Experian Hitwise, which tracks monthly searches, found that Google easily retained it’s number one position in search during March, citing 71% market share. The closest rival is Yahoo! at 15%, which increased 40 basis-points this month. Microsoft’s Bing held steady at 10% and IAC’s Ask.com came in at 3%.

Court Of Appeals Shoots Down Google In favour Of Comcast (Bloomberg)
The U.S. Court of Appeals yesterday ruled that the Federal Communications Commission does not have the authority to regulate Internet management practices; largely a win for network operators Comcast and AT&T. Certain kinds of Internet traffic are so heavy that they slow down the entire system. The ruling allows operators to regulate that traffic. Google lobbied hard for a freer Internet highway; and rightly so considering it would likely increase traffic to the search giant.  In addition, Google may be concerned that cable companies like Comcast may slow the delivery of video services like YouTube to benefit their own “TV Everywhere” initiatives.

FTC To Investigate Google behavioural Advertising Procedures (MarketWatch)
Google, Yahoo! and others were slapped with a complaint filed with the Federal Trade Commission that calls into question technology that “can enable outside marketers to instantly analyse individual Internet users in order to place advertising through online exchanges.” This practice is widely unknown by the average Internet user, but the prosecuting groups feel it’s a major threat to user privacy. The groups are calling for opt-in requirements, rather than opt-out (like the Google Buzz disaster). While not financially material, if enforced it would likely change how search companies use behavioural-based advertising.

Android Getting In Its Own Way, Causing Platform Fragmentation (Cellular-News)
One of Android best features, could also be it’s downfall. The Android platform is open and portable; it can be used across various devices. But one version of the operating system isn’t necessarily compatible with another version causing confusion among developers as to what platform to develop for. The Google developer community is already smaller than say Apple’s (Android has a fraction the number of apps compared to Apple).  The community becomes that much smaller when it has to choose which version of Android to develop for. Google is rumoured to be working on this issue.

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