Google’s stock is now down more than 50% from its high, at a level that most Google fans (and analysts) would have considered unthinkable a year ago. In fact, the stock has now dropped to a level it hasn’t seen consistently in more than three years. And it’s still not cheap (although it’s certainly getting there).
Google’s stock collapse will likely have several impacts on the company. All will likely become more pronounced the longer the stock stays at these levels (or, god forbid, falls further):
Angry shareholders will increasingly pressure management to be more forthcoming about how they are spending Google’s astronomical CAPEX and R&D budgets. Even in the salad days, Wall Street was annoyed about how little Google disclosed about what it was spending so much money on. Now that the bloom has fallen off the rose, this impatience will turn to anger. At that point, management will have a choice to make: Continue to say Google is just “not a conventional company” or cave and start providing better disclosure.
Angry shareholders will increasingly campaign for more accountability on those CAPEX and R&D investments. Specifically, Google’s culture of 20% time, pet projects, and endless revenue-less beta releases will become more and more annoying. Management will then have to decide whether they want to respond to this call for more discipline or, again, maintain that Google is “different.” If they choose the latter route, many shareholders will likely throw in the towel.
Google may have to fire people and/or otherwise tighten the belt. Yes, it sounds inconceivable now, but Google’s margins have been dropping steadily for more than a year. With the global economy headed into recession, it is highly likely that Google’s revenue growth will be hit. This probably won’t put the company in actually difficulty, but it will certainly prompt shareholders to call for change.
A likely shift toward more cash compensation as a percentage of total compensation, which will put more pressure on margins. The gulf between the “haves” and “have nots” in Google’s 16,000+ ranks will now have become even more stark than ever, with the folks hired more than three years ago rolling in wealth and everyone else feeling like they missed the boat. This will exacerbate morale issues. If the stock doesn’t recover, it will also likely force the company to consider raising its cash compensation as a percentage of total comp, to placate those who missed the pre-IPO bonanza.
The Google talent exodus will continue. The fun part, it seems, is over. So why not let someone else worry about the hard and painful part while you try something new?
Perhaps most importantly, the perception that Google can do no wrong will change rapidly. As it does, the pent-up anger about Google complete domination of the global advertising market over the past few years will find a more receptive audience, and the company’s critics will be emboldened.
Will all this kill Google? Of course not. But it will likely force some change. And as far as the company’s outside investors are concerned, that’s probably a good thing.
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