10/18/12 2:44 PM – Problems at Mighty Google

Google reported earnings and revenues today and missed big on both. According to Dan Niles at AlphaOne Partners, Google has two problems.

1) More search is being done on tablets and phones with smaller screens and less ad space
2) The buy of Motorola earlier this year is a big drag

This is what happens when a software and services company gets big, diversifies and starts getting into hardware. Yes, the Google powered Android phones are great but the returns on hardware are nearly always lower than on software and services. IBM did the right things years ago by selling much of their hardware divisions and concentrating on software, services and consulting. Google and Microsoft are going the other way.

I like Google products and use a lot of them but I would not buy the stock here because companies that miss at earnings time usually continue to underperform for a while.

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