New Reasons Google Could Plummet By 2013

May.10.12 | About: Alphabet Inc. (GOOG)

As time marches on, people are growing wearier of Google (NASDAQ:GOOG) for good reason. Personally, I am even growing wearier of Google as an end-user. Even the most aggressive investors are growing weary of Google as either a short or long-term investment. Things seem to be coming to a head for Google and there are a number of red flags that are apparent in recent news that should dissuade most investors from placing a large stake in this tech sector tycoon. Most supporters of its stock price and operations simply have not done the due diligence or are already heavily invested in Google. Google has continued to show increases in growth and revenue all at a persistently high stock price. The sustainability of all three is highly doubtful in this highly competitive industry.

There are systemic flaws in Google's evolving business model. Its focus has grown more fragmented with time and the impatience to grow and appeal to its customer base could eventually lead to the downfall or dissolution of Google. Aside from these fundamental flaws, my main concerns are based in the multiple government investigations of Google, the growing and staunch competition it faces, the increasing amount of litigation against Google, and the renaissance approach it seems to be taking. In trying to be the entity of everything, Google may very well end up the master of nothing, perhaps sacrificing its domination of the search engine industry eventually. Questionable business practices and the recent announcement of a stock split to maintain executive control of Google continue to leave many investors with questions about Google's long-term projections.

Management's impatience to grow has compelled Google to cut corners, attracting the attention of the FTC and litigation from major competitors like Apple (NASDAQ:AAPL), Oracle (NASDAQ:ORCL), Microsoft (NASDAQ:MSFT) and others. These tumultuous situations have also made Google the premier target for more competitors like Facebook, there seems to be blood in the water surrounding Google. With so many issues coming to light for this tycoon, investors should wait at least a year if not more to see where the dust settles after the litigation, investigations and recent acquisitions have come to fruition in order to see the true impact on Google's long-term operations. What once was a proactive and innovative approach now seems to have shifted to a reactive approach to the litany of growing industries and competitors Google is involved with.

Google has had a few different run-ins with the FTC. Most recently, Google is facing fines from the FTC because it breached the terms of a previous consent decree with the FTC by deceiving customers and placing cookies to bypass privacy protections in Apple's Safari browser. Aside from this, the FTC is also investigating Google for the manipulation of search engine results in order to bar its main competitors from showing up at the top of internet search queries. European regulators have also been investigating Google about its latest release of its new privacy policy. These investigations are all after Google already admitted to deceptive tactics and privacy policy violations in the year 2010. The FTC and Google had previously reached a 20 year settlement that barred Google from further misrepresenting how it handled customer information and new products. Competitors like Microsoft, Apple, Oracle and Facebook have been lobbying government officials while filling their own litigation suites against Google.

Oracle recently won litigation against Google for copyright infringement of Java software that could eventually set precedent for open source and API programming in the tech sector from here on. Many problems Google faces from competition also stem from its own open-source Android software that many competitors use in the industry. The recent litigation and increasing competition has driven Google to acquire Motorola Mobility (NYSE:MMI) for over 12 billion as a defense mechanism for its patents as well for its hardware manufacturing capabilities. Many investors oppose this latest acquisition of Motorola Mobility because of recent poor earnings performance, while others argue that it may set Google up to produce its own phone and compete with entities like Apple and Facebook in the future. Still, others speculate that this move while isolate Google and create more animosity and competition from the other tech organizations that currently use Android software for their hardware. The fact is, Google needs to do something because it is falling behind in the tablet industry while suffering from Apple's iPhone prominence as well. The Motorola Mobility acquisition is still being scrutinized by foreign regulators and could eventually lead to the advent of a third party creating similar software to gain market share and compete with Google's Android.

Google is also facing opposition from investors in regards to the nature of the recently announced stock split in order to increase and maintain control by Google's founders. Meanwhile, investors are clamoring for the recently announced buy back from Apple and the possibility of dividends for the first time ever. Google has faced copyright infringement on multiple levels including on simple platforms like Google Books. The model to act now and deal with the consequences later may impact and eventually stifle Google's growth. Many people are comparing Google's recent role and actions in multiple industries to the days of yore with Microsoft and AT&T monopolies. Facebook is now focused on targeting Google's market share by creating both a mobile device and search engine capabilities as well. Google continues to have impressive earnings each quarter including a domination of search engine and mobile software market share. However, the latest issues on the horizon could eventually fragment and mitigate Google's aggressive efforts thus far.

Google would benefit greatly from focusing its efforts solely on the Chrome browser, improving the Chrome OS and creating its own hardware and products to support the software. Google has interests in everything from renewable energy markets like wind and solar to self-driving cars to Google glasses. It is hard to imagine how it can sustain and compete as the more focused competitors in the tech sector continue to grow and evolve their own global agendas for market share.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.