Google’s Shares Continue Their Retreat

Google’s (NASDAQ: GOOG) shares have continued a three-month retreat that has pushed them down by 4% compared to a 5% improvement for the NASDAQ.

It has occurred to investors that the same issues that hurt Google’s share price a year ago have not gone away.

Google may retain its position as the No.1 search company in the world. It has two-thirds of the US market, but America is not a market which is growing rapidly.

China, the world’s largest nation based on Internet use, is still a region in which Google has had no success. Among the 600 million people online in China, almost all use local search engine Baidu (NASDAQ: BIDU). Some observers think that the Chinese government has blocked Google’s advance. That does not matter much. The People’s Republic will do as it pleases. Google also has a weak presence in India and Russia, which limits its global growth prospects.

Two things were critical to the recovery of Google’s stock last year. The first was relatively good earnings. They are “relative” to the extent that Google’s growth now slows each year. The other cause for enthusiasm about Google’s prospects is the amazing success of its Android operating systems which has taken the smartphone business by storm. Android now has a larger market share than the Apple (NASDAQ: AAPL) or Research In Motion (NASDAQ: RIMM) operating systems. But, investors realize that Google has not set out a clear case for why Android will make money. The tenuous argument is that Android will help establish Google as the defacto search engine on mobile devices. That probably would have happened without the costs of Android as people moved their search habits from PCs to smartphones.

Google’s stock price is down because Wall St. sees that its future has not changed at all in the last year.

Douglas A. McIntyre