Is the era of supernormal growth for Google Inc over?

The phenomenal growth witnessed by Google Inc during the start of this decade is gradually slowing down. Google’s revenues had jumped 250 times in 7 years from 2001 to 2008 showing a compounded annual growth rate (CAGR) of 120%. The profits even fared better with the net profits in 2008 being more than 600 times the net profits in 2001 – a CAGR of 150%. However, Google’s revenue growth rate has been slowing down as its size is increasing. The annual growth rate which was more than 400% in 2002 has gradually fallen to about 30% in 2008 and in the first half of 2009 the growth rate was in single digit.

Has Google’s growth matured? Is Google’s supernormal growth phase behind us? It is quite possible as suggested by the trend in the growth rates. Google is now one-third the size of Microsoft and one-fifth of IBM. For a company that was incorporated only 11 years ago - growing to such a size is amazing. Continuing to show such phenomenal growth is not sustainable in long term. If Google can grow by more than 25% in next 4-5 years it would be a significant achievement. A growth rate more than that will require entering into other related businesses. Google has done it in past and is very capable of doing it in future. With plans of entering into the Operating System business which has Microsoft's dominance, Google has a huge potential opportunity which if it can unleash will help it grow even faster.

Marsh & McLennan soared on Putnam's sale

Marsh & McLennan Companies (MMC) , one of the world's largest risk and insurance broker, has reported a net income of $1.95b against last quarter $176m. There was a one time income of $1.85b from sale of its stake in Putnam Investment. Operating income has dropped by 57%.

AIG and Morgan Stanley declare their mortgage write-downs

AIG declared an after tax write-down hitting its bottom line by $2.7 billion and for Morgan Stanley this figure was $2.5 billion.

Morgan Stanley, the second biggest US securities firm after Goldman Sachs, has reportedly written down $3.7 billion in the first two months of its fourth quarter. More than $40 billion dollars have been written down so far by major banks and this figure is expected to escalate to $70 billion.

American International Group (AIG), world's largest insurance agency, had reported a 27% decline in earnings to $3.09 billion against $4.22 billion in the same quarter last year. AIG has insured some players against their mortgage related risks.

Toyota and GM struggle for No.1 spot

During the first half of this year, the Japanese auto major, Toyota, overtook GM to become the leading world's car-manufacturer by volumes. In the 3rd quarter however GM has narrowly crossed Toyota by 10000 vehicles.

On one hand Toyota has reported strong growth in earnings in Q3, GM, on the other hand, had posted its biggest ever quarterly loss. Toyota's growth can be attributed to the growing Asian markets like China and Russia. The struggle between GM and Toyota continues as the difference is very minor. Last month Toyota recalled 470000 cars from the market which has impacted its brand image.

GM posts record loss on deferred tax write-down

Yesterday General Motors (GM) posted its biggest ever quarterly loss- a whopping figure of $38.6 billion. Last year for the same period the profit was $497 million. Such a big loss was due to one time items and write-down of deferred tax liability. The tax charge written down at GM is the biggest so far for any firm. These can be attributed as cumulative losses of last three years. GM has written down these because of expected lower profits in near future.

Excluding these exceptional items the losses were to the tune of $1.6 billion. Its financing subsidiary, GMAC Financial Services, has suffered because of subprime mortgage. GM has 49% stake in GMAC and it had contribute to slightly half of it losses.

Sub-prime fallout on banks

Effect on third quarter results:

Citigroup
CEO Chuck Prince likely to resign
Net profit of $ 2.4b against profit of $5.5b in the same quarter last year

Bank of America (BofA)
Slashed 3,000 jobs
The company is also exiting the wholesale mortgage business.
Net profit of $ 3.7b against profit of $5.4b in the same quarter last year

Merrill Lynch
CEO Stanley O'Neal resigned from his post on Oct. 30
Net loss of $ 2.2b against profit of $3.1b in the same quarter last year

Deutsche Bank (biggest private German bank)
Third-quarter write-downs of €2.16 billion($3.17 billion)
Investment arm reported a pre-tax loss of €179m
Total earnings up y 31% at €1.62 billion(US$2.3 billion)

Bear Stearns
Co-president and COO Warren Spector had to exit because of two Bear Stearns hedge funds meltdown.
600 job cuts in mortgage and investment banking businesses.
New York-based Bear booked a $200 million loss in the third quarter related to the hedge funds. Quarterly net income in the period ending August 2007 dropped 61% to $171.3 million.
Revenue fell to $1.3 billion from $2.13 billion last year.

Lehman Brothers
Closed its subprime mortgage unit BNC Mortgage in August and cut down 1,200 jobs.
$700 million write-down in third-quarter
Third quarter results to be declared on November 8

Morgan Stanley
Cut 600 jobs, scaled down its residential mortgage business.
Income fell to $1.47 billion from $1.59 billion.

Wachovia
Net Income decreased to $1.7b from $1.9 billion Quarter on Quarter basis while it was $2.3 billion in previous quarter of this year.

UBS (biggest Swiss bank)
Third-quarter loss of 830 million Swiss francs ($712 million) vs. a profit of 2.2 billion

Credit Suisse (the second-biggest Swiss bank)
Write-downs of 2.2 billion Swiss francs in the third
decline in net income to $1.1 billion, down 31 percent from the previous quarter.

Countrywide
Loss of $1.2b in third quarter against profit of $0.6b previous year.
First Quarterly Loss in 25 Years

Goldman Sachs
Reportedly made money on subprime business due to short positions

Merrill Lynch posts record losses in 93 years

The largest US brokerage Merrill Lynch had suffered worst quarter since its inception year 1914. The write-downs across CDOs and U.S. subprime mortgages were close to $7.9 billion. Earlier it had reported that this to be close to $4.5 billion. The net loss for the third quarter was $2.24 billion. Merrill's chief executive Stan O' Neal is under heavy pressure from board of directors over the handling of the crisis and is likely to resign.

This loss has made Merrill Lynch the biggest setback of the sub-prime crisis. Its losses were more than the combined losses of the rest of the US brokerage. Earlier Bear Stearns had to close two of its hedge funds and suffer $1.5 billion loss.

Merrill Lynch's reported a total net revenues of $577 million in the third quarter of 2007 which was down 94 percent from $9664 million in the second quarter of 2007 and $9833 million in the third quarter of 2006.

"Mortgage and leveraged finance-related write-downs in our FICC business depressed our financial performance for the quarter. In light of difficult credit markets and additional analysis by management during our quarter-end closing process, we re-examined our remaining CDO positions with more conservative assumptions. The result is a larger write-down of these assets than initially anticipated," said Stan O'Neal, chairman and chief executive officer. "We expect market conditions for subprime mortgage-related assets to continue to be uncertain and we are working to resolve the remaining impact from our positions," Mr. O'Neal continued. "Away from the mortgage-related areas, we continue to believe that secular trends in the global economy are favorable and that our businesses can perform well, as they have all year."

Source :Merrill Lynch Press Release