More people are switching over their spend and activity to PPC and SEO, but the total spend is falling.

Google seem to be doing very well under difficult conditions – I can see their growth accelerating again in 18 months or so when conditions are better.

In short, we would agree with Citi’s analysis that the organic revenue as a % of total revenue for Google as well as a % of total revenue growth is declining over the longer period we studied. As compared to Yahoo (the closest comparable to Google if there is one), you can see however, that Google is destroying their peer from an organic revenue perspective.

Our analysis goes beyond just organic revenue and looks at the efficiency of generating this organic growth, e.g., how much are companies spending to achieve organic revenue growth. We call this efficiency ratio the Organic Growth Multiplier (OGM). The logic behind the OGM is that if one company can spend $1 to get $3 of revenue and another can spend $1 to get $5 of revenue, the latter company is healthier and has more momentum in its business and obviously superior organic revenue generation capabilities.

When we look at the OGM of Google versus Yahoo and versus the larger S&P500 tech financials category, the picture is actually quite pretty for Google. They’re tops as it relates to OGM which means a dollar of their investment into their core business generates more revenue than the average tech sector company. They also outshine Yahoo on this count as well.

The indexed OGM for Yahoo and Google over the period from 2003-2007 are 50.9 and 312.84, respectively. Without getting into the quantitative models that underlie this, the point is that Google’s organic revenue efficiency is far superior to Yahoo.

Lastly, we’ve seen that higher OGM and total shareholder return are positively correlated. So that that implies is that having the ability to generate organic growth efficiently is a good indicator of shareholder returns.

While the assertion that their organic revenue is declining does remain true, the news is not as dire as I’ve been reading elsewhere from those who’ve picked up on this post. Yes, if they can turn one of their acquisitions into a money maker, this will obviously supplement some of the organic revenue deceleration that might be evident in their historical core business, but on the whole Google is still a star when it comes to organic revenue generation and efficiency. The fact that Citi retains its buy rating despite the organic picture is testament to this.

A bit on the methodology.

There are some notable differences from the Citi analysis which despite the similar conclusions do make our analysis more robust.

1. We’ve looked at a more extensive time period (2003-2007)
2. We strip out market growth for each company. In essence, if the market is growing at 10% and your company grows at 10%, we don’t give you credit for this. This is rising tide growth and is not due to management’s actions and investments in the core business. Organic revenue, therefore, in our models is only the growth we can attribute to management’s prowess (or lack thereof).
3. In our Organic Growth Multiplier, we also look at the efficiency of generating organic revenue by determining how much is spent by each company to achieve its organic revenue. This gives a truer sense for the efficiency of the company’s organic revenue capabilities.

Thanks for the great post on organic growth – a topic not often discussed.

Regards,
Anand Sanwal
http://www.brilliont.com
Investile Dysfunction blog
http://www.bril...nt.com/blogs/id

But Google definitely has some disappointments, here’s a list of the top-10 disappointments. It’s 10% longer than the previous one, with 50% more information.

If Warren Buffet’s company can have a P/E ratio of 20 with its shares costing 100,000+ a share, why is Google worth it when its P/E Ratio is almost at 30?

P/E Ratio
http://en.wikip...ia.org/wiki/P/E

Google Stock Info:
http://moneycen...ote?Symbol=goog

It could go up, but I would still not consider it a buy. If I wanted to buy it right now, at best I would earn 5 times what I earned IF the stock goes to 2500. What is more plausable: stck going to 2500 or tock going down to 250 or only go up to 750? Even if I wanted it to go up to 1000 (and double my investment), I would probably have to wait a while.

That is alot of risk for such a gain. Not many stocks go to 1000+ but many stocks go down after their P/E ratios remain at a high level.

I would rather try to find the next Google for $10 a share and let that go up to $100. I earn more and risk less.

Google is not a buy as far as I am conserned until its P/E goes back down to what Warren Buffet calls a good p/e share price

Remember, with Google’s resources, they have the ability to swing for the fences quite often. It doesn’t matter how many times they strike out. What matters is that they continue to swing and will continue to cash in accordingly.

Bottom line, at 62% of Internet Revenue, Google has maxed out the direct marketing budgets of most marketeers. Typically these are 20% of advertising and a bulk is spent on brand engagement. If you read any agency white papers they are all talking about engagement. Google provides no engagement and bypasses the agencies so they don’t trust Google.

If you read the other analyst reports- DoubleClick is helping Google- but only in ad serving. Google has failed in display and in video- a shock as they own YouTube! Too bad Yahoo and AOL are stumbling, as they were good at these, but not anymore. And Microsoft is no focused on catching up with Google in Search (the same mistake Yahoo made) that they ar missing the new game.

Like most analysts, I believe that Google has strategic markets under heavy focus with Tim and Cheryl’s old teams. What’s wrong is that they spent too much on trying to bring Google AdSense for Search to other Media and not enough on Google for non Search on Web. This is their failure. AdSense for Content has failed — ask any publisher, and AdSense for Search has become a domain and click business more and more. Reminds me of Yahoo in the dot bomb — with most revenue coming from other dot coms.

What most analysts believe is that Google and MSN will make their next moves later this year — just like they did YouTube 2 years ago and DoubleClick/Atlas last year. The holly grail is where the ball will be — clearly not in search. Looking for the AdSense for Display and Video, a couple of 1-3B deals just like DoubleClick — but not in Ad Serving, in Media not owned content or social networks. Else bad news for the web and bad news for Google.

You see, when/if Google goes down, there won’t be anything for PROGRAMMERS to create things that might utilise its very presence.