Part of the reason why Google’s stock has been punished by the market recently is the fact that it has been missing its analyst calls half the time. The company is simply isn’t living up to market expectations as far as growth is concerned.
Don’t get me wrong, Google (NASDAQ:GOOG) is obviously growing. The company is making billions and billions of dollars every single year. Income is not the problem. The problem is that the US stock market operates based on growth, especially in the tech space. You are only awarded with a very attractive stock price if your company can show that it can grow at a fast and sustainable rate.
Sadly, Google’s growth rate has fallen short. This partly explains why Google tends to bend over backwards to make all sorts of wild announcements regarding the far-out technologies it’s investing in. Everything from driverless cars to contact lenses that measure blood sugar and all points in between. This is really all part of the intricate dance of a tech company’s public relations department.
Technology companies are often bought and sold based on different parameters compared to companies in more boring industries. Technology companies are supposed to be visionaries and to look into the future. This is why Google’s press releases tend to read a certain way. This also explains why Tesla Motors commands such a massive premium. It really knows how to play the tech public relations game well.
With that said, you can only value a company on hype for so long. Eventually, growth has to take precedence, and it appears that the stock market is beginning to grow impatient with Google.
If I were a part of Google’s management team, I would start looking at Google as a pharmaceutical company. How do the pharmaceutical companies justify their stock price and pave the way for greater appreciation and stock price? They buy other companies. That’s right. They buy companies that have very promising drugs in the pipeline. In the case of Google, they should start looking to piece together a solid merger and acquisition team that would branch out into mobile technology. Considering how much money Google makes, this should not be a problem. It both have the capital to buy such companies and also the advertising infrastructure to explode those companies’ reach.