Google to Curb Expenses as Wall Street Cuts Estimates on Google
Google CEO Eric Schmidt acknowledges that Google is bracing for the recession, while Bank of America and Global Equities Research slash earnings expectations for the search engine giant. Despite enthusiasm over cloud computing and Web services, it's Google's search advertising that has been enabling Google to break the bank, but will it continue? Financial experts expect to see an impact on Google's strength given the current economic climate.Many media pundits and bloggers put up stop signs over the Thanksgiving break last week about Google laying off workers after it was determined that the layoffs were previously announced cuts of Google contractors.
Yet despite a bang-up third quarter, Google CEO Eric Schmidt didn't do his company any favors by telling the Wall Street Journal Dec. 2 (read a GigaOm synopsis here if thwarted by the pay wall) that "we have to behave as though we don't know" what's going to happen.
With that comes cuts of products or projects that aren't adding much, if anything, to the company's fat, yet perpetually hungry, bottom line.
Case in point: Google nixed SearchMash, a Web site it used to experiment with new ways to organize search results. However, Google also two weeks ago launched SearchWiki, which lets users tinker with results. These efforts are different, yet similar in philosophy. Overall, the move appears to be a tradeoff. Google's Lively virtual reality experiment, due to die a slow death until Dec. 31.
Even now, financial analysts are circling like hungry vultures. Citing recent weakness in the online retail and travel sectors, Bank of America slashed its Google stock price target by 23 percent and cut its fourth-quarter and 2009 profit estimates for the search giant. The bank doubts the likelihood that Google can maintain strength in its core search ad business.
Bank of America cut its price target on Google shares to $500 from $650 and lowered by 50 cents its profit view for the fourth quarter to $4.74 a share from $5.24, and for 2009 to $21.45 a share from $22.79.
Global Equities Research analyst Trip Chowdhry offered a direr scenario for Google in reducing his estimates.