As Google Earnings Fall, EU Probe Looms

Last week, amid ongoing speculation over a European Union investigation of Google (NASDAQ: GOOGL), the Internet search giant reported quarterly earnings that fell short of Wall Street
The company reported earnings per share of $6.57 on revenue of $17.3 billion. That missed the consensus analyst earnings estimate of $6.60 a share on $17.5 billion in revenue. However, it still represents year-over-year earnings growth of 4.8% and an 11.9% revenue increase.
This is respectable growth for any business, but for Google it’s also a sign of a maturing company that a decade ago sometimes doubled earnings year-over-year. How does this relate to the EU, which is probing Google over the potential abuse of its leading search position, as well as the way it bundles Android apps and services?
Well, both the company’s earnings and the growing pressure it faces over its practices point to a company that can’t sustain rapid growth forever. The EU probe probably will not result in a breakup of the company. Judging by the market reaction (or non-reaction) to the European Commission’s investigation, odds are that any fine that does result – even a large one – is likely to be relatively immaterial to this behemoth.
Yet, surviving this attack does not mean Google will walk away unscathed. It will likely be subject in coming years to increased scrutiny into its practices, and gradually be reined in, either by competitors or regulators. Even the best businesses can’t grow unchallenged forever.
To be clear, I’m not talking anything close to a death sentence for Google, which benefits from such a lead in the Internet search sector that its name has become synonymous with “to search the Internet.” Google also has a wealth of tech talent, a wealth of cash and a history of masterful management that has enabled it to monetize search technology better than its rivals. Google is sitting pretty.
But things change, companies mature and as the killer apps of one generation give way to something else, new competitors emerge and giants slowly assume a more normal size.
The trajectory of Microsoft (NASDAQ: MSFT) is instructive here. Almost 20 years ago, when the software giant appeared to be the unchallenged lead in information technology, it faced an antitrust suit and ultimately settled with the U.S. Justice Department. The trial was closely watched at the time, but in hindsight, it was the industry forces more than the antitrust suit that served to make Microsoft a somewhat less dominant – albeit still quite formidable – player.
Google is facing regulatory probes at a time when its growth has slowed from the early days. And it’s been close-lipped about many of its newer ventures, except to admit that the first generation of Google Glass was a flop.
Is Google still a good investment?
By all means. But before you consider whether it is right for you, consider what you think you’re investing in: an unchallenged giant, or a leader in a space where the sky is no longer the limit. Invest in Google, but manage your expectations.

Apple’s most closely guarded secret

On April 27, Apple blew away expectations yet again by beating Wall Street’s earnings estimates. Without a doubt, Apple is soaring higher than ever. Yet few analysts realize is that a little-known company is destined to soar right along with it. It’s Apple’s most closely guarded secret…one they would prefer you never know. Discover it right here.

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