Alphabet Inc (GOOG)

[Prosper/high]

Google stock is dead money. Here's By Matt Krantz June 3, 2015 2:29 pm
http://americasmarkets.usatoday.com/2015/06/03/googles-stock-is-dead-money-heres-why/
Google stock has been dead money for a year – a source of frustration for investors who have taken a flyer on this risky stock. With the shareholder meeting raging, the question is, what’s wrong with The Goog?

Shares of the online advertising company are down 0.1% over the past year – a performance that’s even worse than it sounds given the that Standard & Poor’s 500 is up 9.6% over the same time period. That’s hardly the kind of performance investors thought they’d signed up for when Google (GOOGL) was being ballyhooed as the company that would come to dominate tech.

Chart source: S&P Capital IQ
Chart source: S&P Capital IQ
How could the company which has a near monopoly in desktop search and a huge player in mobile operating systems be underperforming by such a wide margin? “Google has to redo everything, and they have to do it fast,” says Trip Chowdhry, analyst at Global Equities Research. Shares are up 48 cents, or 0.09%, to $554.63 Wednesday.

America’s Markets asked several analysts why this stock – which many assumed would be rocking right now – is lagging:

* Mobile pennies are replacing desktop dollars. Consumers think Google is a technology company. But it’s an advertising company. More than 90% of Google’s revenue comes from ads. That means Google is facing the same pressures dogging most online ad-based companies – consumers’ move to mobile devices is eating away at profits of more lucrative offerings, such as desktop search.

“The critical issue that I think is in the back of everyone’s mind is will Google be able to monetize mobile ads as it did for the desktop,” Bonner says. “While the mobile platform is exploding and desktop declining, getting ads to work on the small screen and comparable pricing are a steep challenge. The jury still seems to be out on the mobile question which leads to uncertainty.”

* Flurry of competition for online ad dollars. Back in 2006 – people looking to advertise online only had three main options: Google, Yahoo (YHOO) and Microsoft (MSFT), Chowdhry says. Google built its business stripping away ad dollars from traditional media, he says.

Today – Google is the ad company on the defensive. There are thousands of options including many that are much more focused like Facebook (FB). And they’re all gunning for Google’s customers. “Google needs to understand it’s 2015, not 2006,” Chowdhry says. “They’re being challenged, they’re not the challenger.”

Making things worse – since Google’s ad rates are based on an auction model. That means as the supply of online ads blossom, the prices take a hit, Chowdhry says. “Google was the destination for digital ad spending. Now its just another property,” he says.

* Google I/O was “underwhelming.” Google stock bulls hoped the company’s developer conference last week would reignite excitement about the company’s various offerings. But while the company featured some new features, it was “underwhelming,” says Joe Bonner analyst at Argus Research.

* Google’s profit growth rate is collapsing – causing valuations to compress. The company’s diluted earnings per share before extraordinary items is up an anemic 1.9% over the past 12 months. Google investors probably didn’t think the company could grow that slow. That’s the slowest rate of growth since the financial crisis hit in 2008 and down from 29% in 2010.