Market Overview

Will Google+ Be An Utter Failure?

Wow, people are going wild over Google+. Even here at Benzinga, some analysts are touting Google's social networking service as the next best thing. Let's be serious, is it really that great?

Who is Raving About Google+?

Not surprisingly, social media mavens are extremely hyped up about the service's recent growth patterns. For example, twitter user @buysellshort exclaimed that Google+ is a great service, and even agreed with sentiments that it may take over Facebook's reign as social networking king. User @Raymundo1182 posited that Facebook is boring and that Google Plus' successes may put it in a position where it should buy out Twitter.

Not all social networkers enjoy the service, however. User @vietlytangle believes that Google+ will never be able to match Facebook's successes, claiming that the parent company is simply not equipped to be dominant in social networking.

Google's Vast Outreach

One thing that analysts are raving about is the fact that Google+ has accrued over 90 million users in about 7 months. This is an impressive feat, and cannot be taken lightly. However, one must consider that Google.com is the most populated website that exists. It also owns Youtube, which is the third most visited site in the world. Given its expansive outreach to internet users across the world, it may come as no surprise that Google+ has experienced impressive growth.

Google also operates with a market capitalization of $189.8 billion. With a vast amount of resources, Google certainly has the marketing capability to convince internet users to subscribe to Google+. In fact, estimates show that Google's search engine service sees 1 billion unique users per month. Over the six month timeframe, that means that 1.5% visitors have converted to Google+ users. Moreover, one must consider previous Google users over its lifetime, which probably amounts to several billion. This would drive the conversion rate even lower, which may point to a less than impressive number than analysts hope for.

Will Google+ Last?

Similar to its primary search engine, Google+ rolled out a scheme to monetize the service, albeit only recently. Users can now "+1" ads that they see, which is essentially advertisement endorsement via Google+. Comparing the sheer size of each service and the volume that each experiences, it seems obvious that search engine revenue dwarfs that of Google+.

Investors also have to consider another aspect of the company. It recently reported disappointing earnings and withheld guidance for the upcoming year and quarter. Historically, Google's earnings have been somewhat volatile, meaning that there is no definitive guide for future performance based on historical performance.

If Google is placed in a position where it has to cut costs by getting rid of services, why would it keep Google+? The search engine, Youtube, and many partnerships and affiliations all drive more growth than Google+. Therefore, the social network will most likely fail if Google has to cut costs rapidly.

Is Google Plus' Revenue Stream Stable?

Investors have to take a step back and consider the future prospects of Google+. Will it really drive revenue as much as analysts hope? The ad revenue associated with Google+ is also flawed. Traditionally, Google.com's ad revenue is created when companies pay the firm to place their ads on its site, prorated on a per-click basis. With Google+, the company makes money when users +1 an advertisement.

Based on the average user experience, ads tend to annoy users more than entice them. Users also accidentally click ads many times. Ultimately, if a user clicks on an ad in order to explore it, that is not enough. It is likely that the user will have to purchase the advertisement's product and enjoy it before giving it a +1. Compounding that with the fact that ads cycle constantly, users who have truly enjoyed an ads products may never see it again on the side bar, resulting in the inability to publicly endorse to with Google+.

The Likely Motive for Google+

Google+ may or may not be truly valuable for the company. Long-term prospects are still questionable, despite analysts' fervent beliefs in the product's success. Google+ may simply be an ancillary service that is meant to steal market share from Facebook. Facebook is currently the world leader in social networking, and Google may simply want to flex its competitive muscle by derailing Facebook's growth efforts.

By competing with Facebook, Google may potentially garner even more ad revenues on its daughter websites, and the simple transference of users may be valuable for the company. Not every power lasts forever, so there may be a day when Google's social networking efforts eclipse Facebook's efforts. Until then, Google+ may not be as lucrative an investment as some believe.

The Bottom Line:

Google's earnings history and Google Plus' effective benefits may be correlated. Since its inception, Google's sales and earnings have been less than stellar, and the company may be pouring too many resources into the project. Although it has shown fair growth potential, its desired effects may not be fully realized for years on end.

Especially given an uncertain economic situation, investors should think twice before buying into the deluded positivity. It does not seem likely that Google will wildly benefit from Google+, and the bottom line is that investors want to make money in the most efficient way possible. Now may or may not be a good time to take a position in Google.

Follow me on Twitter at @MakinMarkets


ACTION ITEMS:

Bullish View:
Traders who believe that Google+ will immediately benefit Google might want to consider the following trades:
  • Purchase shares or call options on Google, as hype may drive the stock up in the near term. Analysts are very excited about Google+.
  • Short other social networking companies, such as LinkedIn (NASDAQ: LNKD).
  • After Google's dismal earnings announcement, significant buying pressure may also move the technology sector higher. Therefore, buying into the SPDR Technology ETF (NYSE: XLK) may be desirable.
Bearish:
Traders who believe that Google+ is not a good investment for Google may consider an alternate position:
  • Short Google in any way possible, as there could be further downward pressure after its earnings release.
  • You may consider shorting a social media ETF, such as the Global X Social Media Fund (NASDAQ: SOCL). If investors realize the downfalls associated with Google+, the whole industry may go down.
  • Short other internet-based companies, such as Groupon (NASDAQ: GRPN). If investors lose confidence in social networking, they may feel adverse about other types of internet companies.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

Posted-In: Facebook Google Google PlusAnalyst Color News Sector ETFs Short Ideas Events Global Economics Markets Analyst Ratings Movers Tech Trading Ideas ETFs Reviews Best of Benzinga

 

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