NY Times News Service,
SAN FRANCISCO
Are Internet users clicking on fewer Google ads and putting the company's growth prospects at risk?
Those questions are weighing on investors, who have cut the value of Google shares by 38 percent since they peaked at US$747.24 in early November.
The slide continued on Tuesday when Google shares dropped 4.6 percent to close at US$464.19, as investors were spooked by a report by the research firm comScore that said clicks on Google ads in the US were flat last month compared with a year earlier.
In all, Google's shares have fallen US$283 from their peak, wiping out US$83 billion in market value and bringing an aura of vulnerability, at least on Wall Street, to a company that just four months ago seemed unstoppable.
Investors have focused with new intensity on Google's so-called paid clicks, which grew at 30 percent in the fourth quarter, because the search and advertising giant earns the vast majority of its revenue from text ads, for which it is paid only when users click on them.
Many analysts saw the comScore report as the clearest sign that Google, which does not give forecasts about its future performance, is not impervious to the slowdown that is buffeting the US economy.
"There are pretty strong signals now that the economic slowdown is having an impact on consumers' behavior online and therefore having a negative impact on Google," said Clayton Moran, an analyst with the Stanford Group.
Wall Street analysts say that in addition to concerns about the economy, the company is facing a growing number of questions that are weighing on its shares: Has Google gotten so big that its ability to gain further market share is limited? Is its spending out of control? Will it face stronger competition if its two chief rivals, Microsoft and Yahoo, end up merging?
For now, however, Google remains a highly profitable company that is outpacing all of its major competitors. Its share of the fast-growing online advertising market in the US increased to 28 percent last year, from 19 percent in 2005, research firm eMarketer said.
And even some of Google's biggest critics are reluctant to bet against the company in the long term.
"Everything wrong with Google's stock is self-inflicted," said Scott Cleland, an analyst at the Precursor Group, who testified before Congress against Google's proposed merger with DoubleClick.
Cleland said the most recent quarter -- when Google's revenue grew at 51 percent while profit rose only 17 percent -- was the latest sign that the company was overspending.
"If they cut their spending a little, so that they could start gaining earnings momentum again, their stock valuation would return," he said.
Others point out that the unexpected weakness in "paid clicks" that comScore reported may be the result of deliberate actions taken by Google that may benefit it in the long term.
"I think at least half of it is self-inflicted," said Jordan Rohan, an analyst with RBC Capital Markets.
Rohan said Google had reduced the clickable area in text ads to avoid accidental clicks, which earn it revenue but are of little value to advertisers.
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