If you want to make money with Google then don’t buy the stock, either go to work for Google or go and try to sell them some servers. The headlines and the corporate stiffs will talk about the fantastic growth rate but if you want the stock to be priced where it is then you better have this incredible growth rate. To keep up this growth rate they are spending much more than ever. Not just more, but more than people thought they had to.
They spent 10% of revenues vs 8% on data centers, processing fees, and depreciation of equipment. That is a frickin lot of money. I thought there was some kind of economies of scale in the search engine backbone. Two billion dollars in servers and other equipment is a boat load of money. Looks like the big winners here are the people selling the hardware.
The other people winning out are the employees. Employee cost went up from 6.6% of revenues to 8%. There is no need for that. They are overpaying their employees to prove a point to their competitors. “When you work for Google you work for the best” They are outspending everyone to do it. Great for the employees but not as good for the shareholders. As everyone knows, you have two ways to drive a business, drive earnings or cut costs. It is pretty easy for you to figures out which approach they’re taking. The stock is priced for perfection and they are not perfect.