Has Google peaked?

Posted Apr 2nd 2008 10:10AM by Peter Cohan
Filed under: Internet, Google (GOOG), Marketing and Advertising

Well that was fast -- in August 2004 Google Inc. (NASDAQ: GOOG) went public at $80 a share and the stock climbed as high as $742 in November 2007, an 828% rise. But since then it's lost 37% of its value and some executives have bailed. The New York Times reports that Google's VP of Engineering, Douglas Merrill, just bolted for a position as president digital at record company, EMI.

But this is not the first of its executive departures. Google has also lost the following:

In March, Sheryl Sandberg, who was VP for global sales and operations, left to become chief operating officer at Facebook
CFO George Reyes announced last August that he would retire. At the time, Google said it hoped to find a replacement for him by the end of the year but has yet to appoint a new CFO

Meanwhile, Sys-Con reports that Google's U.S. growth is slowing. In 2007 its click-through rate grew between 25% and 40% but in January 2008 click-through growth was flat and in February click-throughs grew a mere 3%. And it gets worse --plain old Google searches that have nothing to do with paid clicks are also down 5% or 6%. Google attributed the January slowdown to its attempts to improve the quality of clicks and tighten up on accidental clicks.

So are Google's best days behind it? It depends on whether there lurks a radically new and popular service somewhere in its 83 employee-initiated projects. Meanwhile, at a Price/Earnings to Growth ratio of 1.2 -- on a P/E of 33 with earnings growth of 27.5% to $22.04 in 2009 -- Google stock is not cheap -- but it's not grossly overvalued either.

So if you think Google could make a big unexpected splash with one of its new services, then it might not be a bad time to buy. Otherwise, take your profits. That's what a growing number of Google executives seem to be doing.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Google securities.

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