Google Comes Out of Beta Phase
Google Comes Out of Beta Phase
Ever since Google went public on Aug. 18, 2004, at $85 a share, its been all sunshine. But as the company heads into a March 2 meeting with Wall Street analysts, its becoming clear that the company is entering adolescence and facing some awkward moments ahead.
In other words, the first incarnation of Google could be defined as a corporate beta phasea honeymoon, if you will.
What happens from here will be far more interesting. At the least, Google will face "much greater scrutiny" at its analyst shindig, says Citigroup analyst Mark Mahaney.
Up to this point, Google could experiment, rattle Microsoft with new projects, hire 50 to 60 people a week and essentially do no wrong.
Financially speaking, Google may have had the best beta phase ever.
For 2005, revenue was 92.5 percent to $6.4 billion with net income of $1.46 billion, up from $399 million a year earlier.
Sure there was some Wall Street consternation over the fourth quarter tally since Google only reported fourth quarter net income of $372 million on revenue of $1.92 billion, but who is going to seriously quibble about those figures?
However, there are signs that Google is exiting the love affair stage and may have to worry about all those things other companies have to worry aboutmanaging expectations, balancing growth and profit margins and tackling new markets.
Indeed, Google Chief Financial Officer George Reyes on Feb. 28 just happened to mention at a Merrill Lynch investment conference that maybe the law of large numbers will slow the companys growth. Whoops.
The stock fell 7 percent to $362. Still pretty heady compared to the IPO price, but down a bunch from the high of $475 just a few weeks ago.
Now the fun really begins. How will Google evolve as a company?
Next Page: Key questions.
No one really knows, but here are some key questions to ponder as a grown-up Google emerges. Feel free to cook up a few of your own in Talkback.
Now it has to increase its capital spending to add capacity and expand internationally. Merrill Lynch analyst Lauren Fine estimates Google is hiring 50 to 60 people a week and investing heavily in technology and real estate.
In the fourth quarter, Google spent five times more on capital spending than it did the year before.
Not that I bought it, but it was entertaining reading.
Now that the company is larger it may be a little more difficult to take its anti-evil chatter seriously. Just look at the target Google has become over its China business.
How can Google maintain its motto as it grows? When you get that big, you are always evil to someone.
Meanwhile, what happens if you only leave a door open to evil in the form of security breaches via Google Desktop?
"Reportedly, Google has a list of Top 100 R&D projects," says Mahaney.
"What isnt clear are the financial screens Google applies to determine which projects get allocated the most resources."
Obviously, things like Google Base and Google Payments could be worth a lot in the future, but the proof is in the profits.
Well, along the way it alienated advertisers and lost its mojo. It overturned its management team and grew up a good bit. It doesnt take a rocket scientist to figure out Google could go through the same evolution.
Indeed, rumor has it Google cooks up projects just to see what Microsoft will do. A nice touch, but it may be too early to count Microsoft out. Nevertheless, all of my searches go through Google.
MSN who? Watch for what Google does on the desktop. Hard to see Google supplanting Windows, but you never know.
Mahaney estimates that Google is pulling ahead of Microsoft in search, but Vista and the latest version of Internet Explorer should change the equation.
"The Microsoft competitive risk remains very real," says Mahaney.
Larry Dignan can be reached at firstname.lastname@example.org.
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