Lex: Google

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It is hardly a revelation that Google’s growth will slow. With gross revenues already above $6bn it would be absurd to expect them to keep doubling in size every year. That said, other comments from George Reyes at a conference on Tuesday were noteworthy.

Most importantly, Google’s chief financial officer suggested the internet giant has realised many of the gains available from optimising the paid search advertising system. That implies that recent revenue growth in the core business has been turbo-charged by improvements that are unlikely to be repeated. For example, Google cannot add new lines of paid search results above its pure search results every year to boost revenues.

In future, growth will rely more on underlying market drivers such as the number of internet search queries, Google’s share of them, and the price advertisers pay for each click. Without the fuel of big monetisation improvements, growth in the core business could slow more quickly than some expect. That would make the group more reliant on generating revenue from new, as yet unproven, fledgling services, such as Google Earth.

Google’s shares are at a very twitchy point, with investors trying to decide on reasonable growth expectations. Tuesday’s brief slump showed how big the reaction will be to a real disappointment. The raw state of investor nerves means Google must communicate carefully. To make a comment that undercuts the shares by 13 per cent only days before its own investor presentation is more than careless.

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