Growth getting expensive at Google

What is happening to Google stock? Isn't it surprising that when the market is hitting new highs every other day, if not everyday, Google stock is languishing. And you cannot blame the earnings which almost doubled from last year from $1.54 to $3.18. So there is definitely something that the market is uneasy about. If you look a little deep you will find not one but several reasons why the market might be worried.

1. Google has become massive in an extremely short time - Look at Google's market cap. At 140 billion it is just about half of that of behemoth Microsoft. And look how tough growth looks at Microsoft. As Google is getting bigger it will increasingly find growth tougher to find however good their business model is. The more money you make, especially in such a short time as Google has done, more eyes are turned to see if they have done or doing anything wrong to get there. There are lot of companies (with deep pockets) after Google trying to see if they have violated any laws (and YouTube is only worsening the situation). If nobody else can stop them, once you see Google being accessed by "everybody", won't the government go after them, just like they did after Microsoft, with the premise of monopoly?

2. Google's next stop which is Media is a harder nut to crack - Google caught everybody by surprise making money selling sponsored ads. Nobody thought that would be such a lucrative business. But it is as everybody has now realized (or at least looks like that for now). But every market saturates and so will be with Search. Google is now venturing into Media land. But this space is totally different. Here Google is facing big mature companies like News Corp., Disney, Sony Pictures, Viacom, NBC Universal, USA Interactive and even Time Warner who are there from ages. The business model is qutie mature. Margins are cut-throat. In such an environment Google is now faced with the uphill task of not only penetrating these markets but making good money as well. Will they be able to do it? It is difficult to say. After looking at the success of Google, News Corp. was sharp enough to snap up MySpace.com quite early on. So the media companies have become alert and looking for every opportunity. Even if they can work with Google, they are going to see that they get a great deal cause they own the content, and they know what Google can do with that content.

3. Easy money has been made and now growth has got expensive - Google has said in it's quarterly statement that capital expenditure will continue to be heavy for the forseeable future. That is imperative to Google's growth and management understands that. Even so the company has been spending significantly for the past year, you can see that the returns are quite mundane. Google is finding tough to penetrate markets other than search - No other product launch by Google has been a splash and still Google's only significant source of revenue is it's sponsored ads program (AdWords and AdSense). That is telling since if Google cannot find it's next growth driver soon, it wouldn't be far to have a deadend for the road to growth. No wonder the market is heeding to this.

4. Google is facing tough competitors in it's own field - Is there anything that Google is trying to do that Microsoft is not after? I don't think so. I bet Microsoft has all eyes on one thing - how to beat Google. And same it is with Yahoo. Not only that, there are plenty other startups who are vying to become the next Google trying out different things.

But with all this said, is it that Google is doomed? Well, every company has competitors. And every company has challenges that make it's future success questionable. The thing/s that will drive Google is/are not what you are seeing but those that you probably haven't seen yet. They are in the making. Remember, Google is the company of the new age, the internet age. But the market has no patience whatsoever to wait till they get it out and it starts driving their revenue/earnings up. So Google may go in hibernation for a while, it may take a breather after it's solid run, building up energy for it's next stretch. Till then there is only one thing it's investors can do - have patience.