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February 28, 2006
Google Shows Its Age

At less than 10 years old, Google is no longer a spring chicken. The search engine giant's stock went into a tailspin Tuesday when Chief Financial Officer George Reyes said advertising revenue growth is slowing. The disclosure at a Merrill Lynch Internet Advertising conference in New York sparked wide selling on Wall Street, as the American Stock Exchange Internet Index fell more than 3 percent.

What Reyes appears to be telling an always-skittish Wall Street is that Google is entering middle age in Internet time. No longer a startup, Google has joined the ranks of other multi-billion-dollar businesses that have to work a lot harder to deliver double-digit growth rates.

This doesn't mean that Google can already see the retirement home. What's changed is the company can no longer depend on advertising revenue alone to keep investors smiling. Web search advertising accounts for more than 97 percent of sales at Google, and no company can survive long term if it remains that heavily dependent on one market. That's particularly true in the case of Google, which is facing increasing competition from other tech giants, particularly Microsoft.

In Reyes words, the company is going to have to find "new ways to monetize the business."

This could mark the end of the stratospheric heights reached by Google stock, which has topped $400 a share. The search engine has soared on expectations of enormous growth rates, but now that Google is trying to take expectations back to Earth, its shares are likely to start trading on sounder economic principles.

Drop me an email to let me know what you think.

Posted by Antone Gonsalves at 08:31 PM | Permalink

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