Can Google Possibly Maintain Its Earnings Growth And Continue To Post Better Than Expected Earnings Reports Every Quarter?

With Google reporting their Q4 2007 earnings tonight, you have to start to wonder when the Google rocketship will start to slow up.

Remember the days when people were openly wondering if anyone would be interested in buying Google's stock shortly after they went public? I believe that the stock was trading at around $100 back then, and since then, Google has risen as high as $750. Currently it trades at $546 and has a market cap of $171 billion dollars.

When you consistently outperform earnings every quarter, you heighten expectations in not only your investors but also the analysts that follow the company. Many investors that I speak with insist that Google will crush earnings expectations every quarter. Many analysts project a certain level of quarterly earnings for Google, but usually project a much higher "whisper" number. Normally Google beats even the highest of expectations with ease.

The problem is that eventually a company will underperform expectations. It's just natural. If Google smashed expectations with every earnings report, it would be a trillion dollar company before you know it. It is simply impossible to maintain, even for the most well-run and dynamic of companies. Eventually there comes a point when a growth company becomes a "mature" company.

It happens over and over, and is a constant in the stock market. Back in the late '90s, Qualcomm was the stock that everyone had to own. It would crush earnings expectations with each report, and the stock was on a one-way trip to the moon. Same with Ebay. Same with many other companies. Eventually everyone that wants to own the stock, owns the stock. Eventually the companies earnings growth will start to slow down and the rise in the stock will start to taper off.

I'm not saying that Google isn't a great company. It is. However, I think that the time is coming when investors need to start moderating their enthusiasm towards Google. If you expect Google to return you 100% or even 50%+ every year, you are in for a rude awakening.

How long can Google continue to outperform earnings expectations?

Filed under: General Market News | Internet Companies