Google (NASDAQ:GOOG) is a red-hot technology company. It is enjoying sky high valuations that typically attend high-tech companies. You have to understand that the price of stocks has little to do with actual earning power and actual value. There are a lot of companies making great money, have higher profit margins, and are showing a great earnings growth, but their stock prices remain stagnant. Their valuations remain rooted to the ground.
The common sin these companies commit is that they are not tech companies. Oftentimes, they are in industries that are decidedly boring and not sexy. That is the weakness they suffer from.
Google, however, is in a hot space. Investors go crazy over technology stocks. There is a lot of hype. There is a lot of buzz. Not surprisingly, stock prices have no relationship with reality. If you ever need proof of this, just look at Twitter.
Twitter (NYSE:TWTR) is really a modern marvel of stock buzz, hype and expectation. Will Twitter ever make money? What is true is that there is a lot of buzz and market expectation keeping its share prices up. This company is worth billions of dollars, and its prospects of making a red cent look unclear at the certain time. What is wrong with this picture?
This is precisely what is at play with Google. Google has recently been forgiven by the stock market, despite the fact that it has reported earnings that fell below analysts’ expectations. Usually, if you are a regular company and you report earnings that disappointed Wall Street’s expectations, your stock will get hammered. That hasn’t happened with Google. This is surprising, given that this is the fifth time that Google has failed to meet Street expectations.
It is only a matter of time until the market’s patience with Google wears out. It is no surprise that Google is making a big deal out of all its high-tech acquisitions and its high-tech experiments like Google Glass. People need a distraction. People need a reaffirmation of how cutting edge Google is.
However, just like in the The Wizard of Oz, when you pull the curtain at the back of Google, you would see that it is really just an advertising company. It takes the form of a search engine, but it is an advertising company. That is the bottom line. Google knows this. If you are a Google shareholder, you need to put pressure on this company to get its act together and get more revenue streams going. It can’t remain a one-trick pony forever.