Renewed focus on potential antitrust enforcement in the U.S. and Europe is making Google appear more vulnerable than ever, but some industry analysts say the worries are overblown.
Recent news that U.S. Federal Trade Commission staff recommended that the regulatory agency sue Google two years ago for antitrust violations
has dredged up legal worries that the company thought were put to rest.
While Google isn't facing an active antitrust investigation by U.S. authorities, EU regulators haven't completed their own probe of the company’s business practices. One EU lawmaker has suggested that the disclosure of the FTC staff recommendation lends credence to European concerns about Google's business practices.
The potential for antitrust in Europe is just one reason why the immensely wealthy and powerful search and Internet company that was in a seemingly invincible position a few years ago is looking more vulnerable than it has in its history.
While Google has expanded into a number of new ventures in the past two or three years and the company continues to be a formidable voice for the IT industry on numerous issues, most notably on those pertaining to government surveillance and censorship, some market analysts are raising questions about whether Google is past its greatest period of growth.
They note that Google's revenue growth has slowed and its profit margins have declined. Once an unquestioned darling of Wall Street, the company has consistently missed analyst expectations five quarters in a row.
Though Google continues to be hugely profitable, has a market cap in excess of $370 billion and is sitting on a pile of cash estimated at more than $60 billion, revenues from its core ad business have slowed.
The company still holds a dominating presence in the search engine market but its overall share has declined as Yahoo’s has gained in recent months. If Apple does not renew an existing contract to retain Google Search as the default search engine on Safari, Google could see an even more dramatic erosion in market share.
Particularly troubling from Wall Street’s point of view is the gradual slowdown in revenue growth and profitability in Google’s core desktop advertising business. This comes amid rising competition from Facebook, Amazon and Microsoft in areas like mobile ad revenues, cloud services and enterprise software. They have noted with concern how Google’s ad acquisition costs have inched up steadily even as the money it is making per click has declined.
Google’s numerous development projects like its Project Loon
balloon-powered Internet effort, autonomous cars, smart glasses and Gigabit Internet
efforts have attracted considerable attention, but analysts believe the company is still years away from seeing any financial returns from these initiatives.
Despite all its efforts to diversify its revenue streams Google remains heavily dependent on advertising dollars. Based on last quarter’s results Google’s core advertising business
still accounts for nearly 90 percent of the company’s revenues. All its other businesses including Google Apps, Google Cloud Platform, Android, Nexus, Chromebooks and Google Play accounted for barely 11 percent.
For a Wall Street accustomed to seeing growth at Internet speed from Google, the company’s recent business performance has been lackluster at best.
“Many investors remain skeptical of Google’s position among technology darlings exacerbated by the accelerating shift to mobile,” Baird analyst Colin Sebastian had recently noted
even while expressing his own optimistic outlook
on the company.