Google Analyst Day

February 15, 2006

Word from Jonathan Berr over at Thestreet.com is that Google is reaching out to analysts in advance of the upcoming analyst day.  While I’m not an analyst I am a potential investor in Google who has thus far stayed on the sidelines due to what I see as significant near term risk in the stock.

The Barron’s article points out what could happen to the stock price should Google’s growth slow a little and while it doesn’t describe what could make Google miss analyst expectations for revenue growth it does highlight the fundamental problem guys like me have in the Google.  Google could remove some of the questions about the risk by simply opening up a little about the source of their substantial profits.  Google or course claims they are just protecting trade secrets but one could imagine that they also could be protecting an inflated stock price by not being transparent on their revenues.

 
Below is one guy’s take on the risk factors that are preventing me from becoming the type of long term investor Google reportedly covets.  These are the issues that could lead to the Barron’s scenario and these are the types of questions any analyst ought to be asking at the upcoming analyst day.

 

  1. Gambling and pornography.   Google is a media company.  While many media companies forgo revenues from Gambling and Pornography due to business or statutory reasons, Google seems to have little limitations on the ad revenue it will accept from these sources.  Google should come clean on just how much revenue it is getting from these and other potentially problematic categories before some congressman or state legislature gets an itch to curtail the practice.

 

  1. DomainPark.  Google is empowering cyber-squatters through its DomainPark program.  These domains often infringe on trademarks.  They are also driving up the price of launching an online site by creating a scarcity of attractive domain names while creating massive economic value for the cybersquatters. How much revenue are you deriving from the program Google?  How much of this revenue is accounted for as Google sites revenue?  These programs do far more harm than good, for Internet users and for small business owners and anyone else who may want to purchase a domain and one wonders how much longer this goes on before someone tries to put an end to it.

 

  1. Pricing pressure.  Its time the folks at Google helped the investment community get a gauge on how they are dealing with the pricing issue.  The recent FTD and Blue Nile announcements highlight the overall concern that keywords may well be overpriced already.  Are these isolated incidents?  Do subcategories outside of flowers and jewelry show similar trends?  What about the changes Google has been making to the paid listings part of it SERPs, is this a reaction to a drop in click-through rates?  How does the AOL white-label announcement effect pricing?  What about the ongoing trademark disputes (examples: 1, 2)?

The company needs to explain to the investor community what is going on with the above before an event comes along, causes a drop in revenues and we see the Barron’s scenario play out before our eyes. Google should own up to these risks and the analysts should hold them to it.

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