GOOG and GOOGL are priced like growth stocks but lets face it, Google just isn’t growing like it once did. All the hype in the world can’t hide the simple fact that Google makes the majority of its money from advertising. No matter how much you hear about self driving cars, Android, Google Glass, and other cool “businesses”, the fact is that the vast majority of Google’s earning comes from AdWords advertisements that are distributed through AdSense.
At this point, Google really is a one trick pony (maybe two with Youtube) with a lot of “promising” side ventures that keep investors excited and focused on the future. But all those side project don’t amount to a hill of beans come earnings season.
And right now, AdWords just isn’t cutting it like it used to.
People are too used to ads and more and more, ignore them. I know I do and have for years. Additionally, people are moving away from the desktop onto their mobile devices where AdWords doesn’t perform near as well as on the desktop. Another reason Google’s Adwords income is stagnating is that fewer people connect and use search like they once did. Apps rule the day now as people bypass search and use the Internet via the millions of applications that are freely available and super convenient on a mobile device.
As users become increasingly sophisticated, they learn that they have options other than Google’s search engine or any other search engine. If they want to buy something they first go to Amazon. If they want sports scores they first go to ESPN.com or their favorite sports site. And finally, if they want to find out about and connect with their friends they go to Facebook.
Facebook is now moving into its own advertising platform called Atlas and is becoming a direct competitor of Google. Atlas will allow advertisers to use Facebooks user metrics to display the best ads on sites other than Facebook. This is a direct shot at Google and it should work similar to AdSense.
So, the one area Google does make money from is being attacked by a worthy competitor on one end and is also facing a declining business on top of that. This is definitely not what growth investors want out of what was once a bell weather performer that could be counted on to beat earnings and go up almost every earnings season.