Has the Google bubble burst?
Monday, March 10, 2008
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What on earth is happening to Google’s share price? Google’s shares first hit the market at $85 in August 2004 and by November 2007 had risen nearly ninefold, turning Google into one of America’s most valuable companies.
But since reaching a record closing price of $741.79, the share price has plunged more than 40 percent.
The dive, which has wiped out more than $96 billion in the value of the business (from the point of view of shareholders), reflects concerns that a slowdown in consumer spending could temper Google’s stunning growth.
Looking through recent press comment on Google’s share price performance, it is possible to pick out the main reasons for the fall.
Investors seem worried that search advertising, which accounts for nearly all of Google’s revenue, is slowing, and that ambitious projects in other markets, such as online video, mobile services and social networking, are not paying off.
Google isn’t the only tech-stock start to suffer in recent weeks.
Since the start of 2008, shares in Apple have tumbled 38 percent on worries that consumers won’t buy as many iPods or computers. Shares in e-commerce giant Amazon.com have fallen 31 percent.
Google is currently value at about $135 billion, down from its November 2007 peak of $232 billion. In 2007, Google generated $4.2 billion in profits.
The share price fall represents a challenge for Google’s management who have enjoyed a long run of rapid share price growth as their business has gone from strength to strength. Can the great Google continue to prosper in really difficult economic conditions, particularly in the US, during 2008. A story worth watching.
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