Google's Recent Performance

Google's earnings announcement, which came after the close of the market on Wednesday, signaled that it continues to experience extremely high revenue and earnings growth.

However, in keeping with my proprietary research results, the company's performance is beginning to be better-anticipated by observers, resulting in the attenuation of its total returns in response to such stellar revenue growth.

Further, as happens with long-experienced, high revenue growth levels, and their attendant infrastructure growth, in people and expenses, profit margins are suspected, by analysts, of beginning to come under pressure.

I wouldn't say Google won't have great total returns anymore. I would suggest that its size and growth rate are beginning to affect its continued performance in ways that they have not prior to this. When I hear about expenses for large, new initiatives, such as their online payment system, creating significant expenses, I can't help but think that Google is becoming a 'normal 'company, at last.

Friday morning, Scott McNealy, of SunMicrosystems, was a guest host on CNBC. He opined on Google, and YouTube, marveling at how, since the days of Microsoft, Sun, Apple, Dell, Yahoo, AOL, et. al., it seems that the timeframe in which companies experience such spectacular growth, and the sizes to which they grow, keep getting, respectively, shorter, and larger.

What puzzled me is how McNealy failed to notice the significant differences between these various firms. The earlier examples tended to produce hardware, and software. The latter tended to be for a couple of specific applications- operating systems, Office, etc. AOL was more of a networking application itself, using hardware, but offering fairly rigid software for online activities. Yahoo was the first generation of 'informational' software, wherein the consumer could and can just use the service for free. It's a mile wide and an inch deep, as has been discussed in prior posts on this blog (search on "Yahoo" to read them).

Google is, in my opinion, quite different from all of these. It's primary application was a superior search engine, around which it clustered advertising, using another superior methodology. By offering something totally consumer-configurable, for free, it skyrocketed. Google requires hardware to support its users, but it offers an essentially unchanging service, search, then mapping, auctions, etc., for which users provide all the tailoring.

No wonder why it's grown faster and larger than its predecessors. It's the latest "perfect" combination of pure software usage, for free, requiring no hardware building, little software building of an individual-specific or application-specific nature, and the revenues come straight from user behavior, rather than explicit "selling" by Google. Probably more than most companies, Google has succeeded in making large parts of its business completely "virtual," yet generic, to its customers.