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Google's vow of silence is hurting stock

June 25, 2012: 12:59 PM ET

Google CEO Larry Page will miss some important company events in June and July. That has some investors worried.

Google (GOOG) prides itself on not being "evil." But is it just a tiny bit evil to keep shareholders in the dark about why CEO Larry Page is missing some key events this month and next?

Page was not present at the company's shareholder meeting last week. Google chairman and former CEO Eric Schmidt said it was because Page had lost his voice. Schmidt added that Page will not attend this week's developer-focused I/O conference and will also not take part in Google's second quarter earnings call with analysts in July.

That kind of cryptic announcement can make tech investors nervous. Apple set a dangerous precedent, disclosing very little detail about Steve Jobs' health battles and only informing the public after the fact (in August 2004) that Jobs had undergone surgery following a cancer diagnosis. Although Apple has continued to thrive following Steve Jobs' death last October, investors worried for years about Jobs' health and succession plans -- while the company stayed fairly silent on those points.

Google's stock has lagged the broader market and tech rivals Apple (AAPL) and Microsoft (MSFT) this year. Shares are down 13% in 2012. Heck, Google has even fared worse than Yahoo (YHOO), a company that has been a turnaround story for a decade and is now on its 7th CEO since 2001.

Now, there is absolutely nothing to suggest that Page is suffering from a serious illness. But wouldn't it behoove the company to learn from the mistakes that Apple made and more directly address the situation? A spokesperson from Google simply said that Page has lost his voice and "can't do any public speaking engagements for the time being" and that Page "will, of course, continue to run the company and he will be involved in all the strategic business decisions we make."

Once can only hope. Page is not just a garden variety CEO who can easily be replaced. He is one of the company's co-founders -- and along with fellow co-founder Sergey Brin and Schmidt, Page has voting control of the company.

Shareholders even agreed to further concentration of power among the Page/Brin/Schmidt troika last week by approving Google's unconventional stock split. So if there is any reason why Page can't function as CEO for an extended stretch, Google owes its shareholders an explanation.

"The news about Page is surprising and unusual. Not being able to speak for four weeks or so would seem to be significant," said Scott Kessler, an equity analyst with S&P Capital IQ in New York. "It just adds more layers to a story that's already complicated for the stock."

That's a good point. Even if Page was physically capable of shouting from the rooftops about how "super excited" he was about all of Google's new initiatives at I/O this week, there are still many other risks facing Google that help explain why the stock has been a dud this year.

First and foremost, Google may be making headlines for all the wrong reasons for the next few years. Google has quickly become the favorite target of regulators around the world for allegedly anticompetitive practices. Google circa 2012 is to the DOJ and EU what Microsoft was in the mid-1990s.

Related: Google ordered to mend its ways fast or face antitrust action

Google is also not immune from Europe's financial woes. In fact, the weakness of the euro currency and concerns about online ad spending slowing could hurt its second-quarter results.

Clayton Moran, an analyst with The Benchmark Company in Delray Beach, Fla., estimates that Google generates between 35% to 40% of its revenues from Europe. So it could be doubly hit by weaker demand in Europe as well as from the conversion of European revenue into stronger dollars for financial reporting purposes.

"Google is an advertising company, and it is feeling the effects of a global macroeconomic slowdown," Moran said.

Moran added that he's not sure that Google will unveil anything at I/O that will really excite investors. He's expecting Google to announce a cloud services platform similar to that of (AMZN). But Moran said that will not be a "needle mover," and noted that cloud services is now a highly competitive area. Microsoft is also a player in this field.

There is also a lot of chatter about how Google may introduce a low-priced tablet this week. That would not be a huge shock, especially since Google now owns smartphone and tablet maker Motorola Mobility. But Kessler said it's the purchase of Motorola that actually makes him most nervous about the stock going forward.

Related: Has Google's Android peaked?

While some analysts raved about how Google was acquiring a treasure trove of patents, Kessler is not confident the deal will pan out. There are legitimate questions about how Google will handle owning a maker of devices running on its Android mobile system that competes with Android partners like Samsung and HTC.

"The Motorola Mobility acquisition will add another large new business and make Google even more complex," Kessler said. "It will be interesting to see how Google presents the Motorola results in its earnings and if it will give any indications about the future of the hardware business."

But perhaps the biggest challenge facing Google is the question of how lucrative mobile advertising can really be. Both Kessler and Moran said that the cool reception to Facebook's (FB) initial public offering is a clear sign that investors are skeptical about the ability of any big tech company to generate significant profits from mobile search and display ads. It's worth noting too that much of Google's stock slide this year has taken place since Facebook's mid-May debut.

Mobile worries surrounding Facebook have "contributed to the overall decline in sentiment surrounding Google," Moran said. Kessler added that investors are "increasingly focusing on the notion of mobile monetization," thanks to Facebook.

Plus, there are still many questions about Google's overall social strategy. Google+ doesn't look like it will supplant Facebook anytime soon.

So unless Google can silence the doubters during its conference call -- a task that may fall to Schmidt or Brin if Page remains silent himself -- then Google may be dead money for a while, even though it appears to be a cheap stock.

Shares are now trading for just 13 times 2012 forecasts. That is extremely reasonable for a company whose profits are expected to increase by 20% this year. But the big caveat is that these estimates might be too high. Moran thinks Google's earnings per share will miss consensus forecasts this quarter because of the Europe mess. And consensus estimates for this quarter, the full year and 2013 have ticked lower over the past month.

That's not a good sign for a tech company. Momentum is supposed to be positive, not negative.

"Google may seem well-positioned in search and there is still a lot of growth there. But Google should have a lower earnings multiple because of the many overhangs in other parts of the business," Kessler said.

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Paul Lamonica
Paul R. La Monica
Assistant Managing Editor, CNNMoney

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

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