Google IPO No Bargain

Based on the company's 268 million shares outstanding cited in the filing, Google earned 53 cents a share in the first half. On an annualized basis, that's a $1.06 a share -- putting stock at a back-of-the-envelope price-to-earnings ratio of 115, based on the IPO range midpoint.

That kind of multiple is hardly unheard of in the Internet industry, where until recently many big players didn't even have earnings. Yahoo!, for instance, trades at 85 times the 33 cents in earnings that analysts expect for the company this year.

But the recent selloff in these shares points to presure on those premium multiples. Meanwhile, the S&P 500 earnings multiple rarely goes beyond the mid-20s.

The news comes as Wall Street struggles to make sense of the reviving Internet advertising market. Several big players in the sector enjoyed a first-half rally, but the good news has recently come to an end amid a series of earnings disappointments.

Worries about growth in the Internet ad business came to a head Friday, when Amazon and Yahoo! each fell 2% and eBay dropped 10%. All those stocks have lost at least 15% of their value during a pronounced July swoon.

Among the chief concerns, investors say, is growth in the pay-per-click search business that is the core of Google's revenue.

Setting off the Net selloff earlier this month, Yahoo! indicated that its paid search business was sequentially flat in the second quarter, after enjoying quarters of impressive sequential growth.

As some had speculated, Google wasn't immune to the slowdown that hit Yahoo! in the second quarter. In its Monday filing, Google noted it had 7.5% sequential revenue growth in the second quarter, down from 27.2% sequential growth in the first. The company attributed the slower growth to "seasonality," specifically "slower growth in the number of page views and search queries, and ultimately paid clicks."

Google also noted that it had entered into no significant new agreements in the second quarter for supplying search-related advertising to other publishers' Web sites.

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