Scott Kessler, the technology group head for Standard & Poor's Equity Research who recently downgraded Google's stock to "sell" from "hold," spoke with
Business Week about his reasons for doing
so. He says investors should know the ABCs of Google risk. "A" is for absence, as in absence of revenue diversification. Google is a one-trick pony, generating 99 percent of its revenue from search
and contextual advertising. "B" is for building competition--as in, competition that's growing. Even though it has several Internet revenue streams, Yahoo! has invested enormously in search and will
continue to compete aggressively. Microsoft this year is set to roll out its long-awaited advertising system adCenter, which should mark the software giant's shift of focus to Internet advertising.
AskJeeves is also said to be pursuing its own Internet search advertising strategy. Google should also beware of MySpace owner Fox Interactive Media, which has continued to grow and grow since parent
News Corp. acquired it last summer. Fox Interactive has said it will go into Internet search, which is a very daunting prospect for Google considering MySpace's size. The question is how the company
will go about it--and the answer is likely to be an acquisition or partnership, which obviously won't include Google. Lastly (and fittingly), "C" is for click fraud. God only knows how a big a problem
this really is. A recent study says up to 30 percent of online clicks could be fraudulent; other studies are all over the map. This will definitely affect how advertisers feel about search spending.
Essentially, Kessler says his downgrade of Google is about overvaluation and risk.
Read the whole story at Business Week »
