The recession could save Google from itself

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The recession may be good for Google (GOOG). Its revenue growth will almost certainly be hurt by the economy, but its expansion into businesses that are not related to search may slow considerably. Investors have been concerned that getting into marginally related businesses like YouTube and online desktop applications has been a distraction, and a very big expense. If Google's revenue increases are going to take a hit, it will need to reign in costs to keep its margins.

Google has not acquired a company in six months. This represents quite a dropoff in acquisitions -- Google has done more than 30 deals since 2005. This is especially surprising since the price of acquisitions has almost certainly been driven down significantly by the economy.

Google's retreat from the deal making world may last a long time, and that is not just because of the economy. A number of relatively senior executives have left the company recently. Some of those departures may be due to a maturing of Google's ad search business and a sharp decline in its stock, which makes getting rich working at the company harder. Less than two years ago, Google traded at $747. It now sits at $348. Thinning management ranks could undermine the firm's ability to integrate and manage new businesses.

Whatever the reason, most investors will be happy that Google is not spending money on operations that may have little or no benefit to earnings and moving back to focusing on its core competence.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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