Google's Achilles Heel

Google's Achilles Heel
Wall Street loves it. Consumers are begging for more of it. Other companies want to be it. But Google has its vulnerabilities--excessive reliance on search advertising, lawsuits, eroding public trust, lack of focus and the competitive threat from Microsoft. How long can Google's run last?

By Alice LaPlante InformationWeek
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Does Google have an Achilles heel?

Based on recent events, you have to wonder. Its stock price reached $475 after two significant announcements--Google Video Store and Google Pack--at the Consumer Electronics Show earlier this month. Then, just 10 days later, Google announced the $102 million purchase of dMarc Broadcasting, which develops an online system for advertisers to buy radio airtime. Google said it plans to move its advertising juggernaut into radio.

How hot is Google?

- Google's market cap, now hovering at around $132 billion, is bigger than IBM and Chevron.

- Piper Jaffray analyst Safa Raschtchy said the stock would likely soar past $600 this year.

- Unlike high-flying Internet bubble companies of the 1990s, Google is profitable, with revenues growing an average 110% quarterly since it went public in August 2004.

- Google has a war chest of $7.6 billion for doing whatever it pleases.

- Google is one of the top 10 Web brands in the U.S., and the second-fastest-growing Web site, building traffic 29% in the past year, according to Nielsen/Net Ratings. Only Apple's Web site is more popular; Yahoo and MSN lag far behind.

- Google is king of search-related advertising, and search-related ads are the fastest-growing sector of the online ad business, which is growing at 41% annually, said Piper Jaffray.

- Google has almost twice as many search ad clickthroughs as runner-up Yahoo. In December, Google had 16.5 trillion ad clickthrough, compared with Yahoo's 9 trillion, according to Nielsen/NetRatings.

- Google earned $3.64 billion from U.S. online ad revenues in 2005, representing 69% of all paid search advertising, according to eMarketer.

Still, some prominent pundits are predicting a stumble for Google this year.

"Google is not invulnerable, and in general the risks are where most people aren't looking," said Scott Kessler, an equity analyst with Standard & Poor's, who bucked the tide last week by saying in a research note that Google's stock was overvalued, downgrading the stock from hold to sell. Google stock prices took a hit as a result.

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