Google Inc (NASDAQ:GOOG) shares have not been performing particularly well in the last six months. Since the company peaked above $900 per share in May, and again in July, shares have slumped. The firm’s second quarter earnings report is to blame according to many, but Google faces some fundamental problems that deeply impact long term growth prospects.


The new report puts a Hold rating on shares in Google Inc (NASDAQ:GOOG), concluding that gains in the company’s value have likely plateaued. Google has seen a huge growth in value since the start of the year, with more than 23% gains since January 1. Many analysts earlier in the year were bullish on the company’s prospects, with price targets of $1000 or more being offered.

High value, compressing margins

Google Inc (NASDAQ:GOOG) core businesses are actually performed well in the most recent earnings report according to Stifel analyst Matthew S. Heinz. According to a research note released yesterday, Android and Chrome all performed well. Google faces two major problems, slowing ad revenue growth, and a lower margin business mix.

Google Inc (NASDAQ:GOOG) has real competition for the first time in years with Facebook Inc (NASDAQ:FB) expanding its advertising offerings. That expansion is affecting Google Inc (NASDAQ:GOOG) in one area in particular, the quick moving mobile market. With competition in the fastest growing part of the mobile business, Google is going to have a tougher time expanding revenue.

Margins at the company are also likely to fall in coming quarters, according to Stifel, as the company sees an increasing mix from low margin products including its hardware offerings, and revenue from its YouTube service.

Macro is everything for Google

According to the Stifel report, Google Inc (NASDAQ:GOOG) growth is likely to be heavily influenced by macroeconomic conditions in the short term. The company is, according to that analysis, operating less like the dynamic and innovative company it did in the past, and more like a blue chip stock.

A better global economy means higher advertising budgets, and that means that Google Inc (NASDAQ:GOOG) will see revenue blossom. If the macroeconomic climate is as significant in the future as this report suggests, huge growth at Google Inc (NASDAQ:GOOG) may be over, or we may just be waiting for the next big thing from the company.