Google comes crashing down

Google shares tumbled on Tuesday after the company's chief financial officer said "really most of what's left is just organic growth, which means you have to grow your traffic and you have to grow your monetisation".

Google chief financial officer George Reyes told investors at a Merrill Lynch conference on Tuesday morning that "clearly our growth rates are slowing. And you see that each and every quarter. And we're going to have to find other ways to monetise the business." Google's share price was off more than 13 per cent at one point on Tuesday, before recovering somewhat in afternoon trading.

This will not be surprising for many. Recent news stories provide some context for Reyes' comments.

First earnings miss
Google's stock has dropped more than 10 per cent since the company missed fourth-quarter earnings expectations last month -- its first earnings stumble since going public in August 2004. The company would have beat analyst estimates if not for a higher-than-expected tax rate, Reyes said. The stock had increased more than 400 per cent since going public, to an intraday high topping $475 (£272) in mid-January.

Dependence on online ads
From AdWords on search results to ads Google sells that are displayed on other publisher's Web sites and ads that appear alongside its free Gmail service, nearly 99 per cent of Google's revenue comes from advertising. And Yahoo and Microsoft are nipping at its heels. 

Criticism over China
Google is looking to the vast and largely untapped Chinese market for growth, but even that business could be threatened. The company, along with Yahoo and MSN, has been blasted by members of Congress over cooperation with China's censorship policies. A bill has been drafted that would restrict such activities.

Fighting US subpoena
Google's stock took another hit in January as investors worried that the company will be mired in a costly legal battle with the US government over privacy of customer data. Google is challenging a Justice Department request to hand over nonpersonal search information. The case is pending.

Copyright setbacks
Google's sweeping search practices were dealt a legal blow when a federal judge ruled last week that portions of the company's image search site, which displays thumbnail versions of photos found on other sites, likely violate US copyright law.

Trademark, click-fraud lawsuits
Google's core keyword-search ad business has been targeted by lawsuits over alleged trademark infringement and click fraud. CNG Financial has sued Google alleging that the company lets competitors buy keywords using CNG's trademark. Google is also named as a defendant in several class-action lawsuits over advertisers being charged for clicks on online ads that are supposedly theirs but that they say are fraudulent.

Book-scanning controversy
Google has also been sued over its Book Search Library scanning project, which some publishers' and authors' groups argue violates copyright law.

Ads in print, over the air
Google is looking for ways to extend its lucrative advertising business model beyond the digital realm. The company has been experimenting with selling ads for print publications, with mixed results. Google also is teaming with EarthLink on a wireless Internet proposal for the city of San Francisco, which likely will involve ads. Google also recently acquired DDMarc Broadcasting, a company that sells ads that run on radio, and it plans to integrate the technology into its AdWords platform, creating a new radio ad distribution channel for Google advertisers.

Blodget gets bearish
Piper Jaffray recently bumped its 2006 price target for Google up to $600 (£343). However, former securities analyst Henry Blodget has speculated that slowing growth in online advertising could cut Google's stock to $100 a share. "Both market saturation and price pressure will occur naturally someday, as they do with every business. The only question is when," he wrote on his Internet Outsider blog.

Though Google executives strictly adhere to a policy of not providing public financial guidance, Wall Street is undoubtedly anxious to get more answers at the company's annual analyst day on Thursday.