Google (GOOGL -1.92%) is an undisputed tech giant and is currently trading just a few dollars shy of its 52-week high. Since 2010, the company has acquired 87 companies and is currently diversifying its product offerings at a rapid rate. Though at face value these are great signs, mounting issues seem to indicate the company may be expanding a bit too quickly. Here's what you need to know:
source: www.google.com
What's happening?
In the last ten years, Google has increased its market cap nearly eleven-fold. It owns YouTube, the world's largest video sharing site, Gmail, the most popular electronic messaging service on the web , and Android, the most widely used smartphone operating system. Further, CEO Larry Page has his sights set on expanding into even more markets, investing heavily in products like computerized glasses, self-driving vehicles, and devices to significantly extend the human lifespan . The company is a juggernaut and is producing incredible innovations.
Unfortunately, this innovation has come at the expense of quality. The problems outlined below are minor and have had little financial impact on the organization as a whole. However, they evidence an underlying issue: Google may be focusing a bit too heavily on non-core offerings.
One of the first red flags appeared after, according to Time magazine, "Google's Relentless Campaign to make Google+ Work" caused problems for YouTube this past November. Essentially, the organization "mandated users sign up for Google+ before commenting on a video." Forced to sacrifice their anonymity, users were understandably outraged and spammed the site with over 430,000 complaints. Further, a Change.org petition to "Change the YouTube comment section back to its original form" garnered more than 229,000 supporters.
Bradley Horowitz, VP of product management for Google+, affirmed there were "real problems" with the comment system launch. He and his team have made efforts to remedy the situation, but many YouTube users remain frustrated.
Google also received criticism after it halted its Chromebook 11 sales due to reports of overheating power supplies. Hewlett-Packard (HPQ 0.49%) and Google stopped selling the product through Best Buy, the Google Play Store, Amazon.com, and other outlets, and even told customers they should not use the original charger provided with the laptop. Shortly thereafter, the company recalled the chargers, apologizing for the inconvenience. Though the Chromebook 11 was gaining traction, this pause in sales during the peak holiday shopping season will likely yield disappointing revenue figures.
Customers have also been complaining about Google's recent Android 4.4 KitKat operating system update for the Nexus. The operating system is already on its third iteration, 4.4.2, and matters only appear to be getting worse. Similarly, users have voiced an array of frustrations with the Hangouts platform, Google's relatively new answer to Microsoft's (MSFT -1.35%) Skype.
Microsoft, which purchased Skype in 2011 for $8.5 billion, has had great success with the platform in terms of users. Since its acquisition, Skype's user base has grown from 196 million to over 300 million. Although the exact financial impact of this growth is still unclear, it is safe to say the service has been well received. On the other hand, Google Hangouts has faced a variety of problems. Users have voiced concerns about inadequate tablet support, messaging issues, and the inability to use voice outside of the U.S.
Why you should care
Despite these mounting complaints, analysts expect Google's stock price to continue soaring this year. JPMorgan analyst Doug Anmuth boosted his price target from $1,100 to $1,300, stating Google's excellent position in mobile and video should catalyze large gains in advertising revenue. Likewise, Bernstein and UBS have also increased their 2014 Google price targets and many others have deemed Google's stock a "must own." Though these projections will likely move the ticker in the short term, they may be a bit too rosy, failing to take into account the possibility that Google may be losing its focus.
What you should do about it
Watch carefully. Although right now Google's problems are fairly minor, they could develop into bigger issues if not adequately addressed. Keep an eye out for more reports of sub-par product performance in the months to come and, if enough of them arise to convince you that Google is not paying close attention to its main product lines, act accordingly.
