In Search Of The Real Google

(2 of 10)

Whether Google gets it right in sessions like that--balancing business opportunities against consumers' trust--is crucial to the company's future. After eight years of incredible growth, it's fair to ask whether Google is due for a stumble. To put it another way, Can Google maintain its success and remain true to the ideals that made it so popular? These are the guys who adopted as their informal corporate motto "Don't be evil." Sure, analysts in recent years have asked frequently whether Google's luck has run out, and yet the company kept thriving. But its vulnerability was plainly evident two weeks ago when jittery investors cashed out en masse after it reported an 82% increase in its fourth-quarter profit (below the market's expectations) and again after Google said it was launching a heavily censored Chinese-language site. Plus Google faces tough competition from big players like Yahoo!, which is making a dramatically different bet on the Internet's future, and Microsoft, which plans to challenge Google in search and advertising. The Google guys are feeling the heat. "I worry about Microsoft," Brin told TIME. "I don't worry about competing with them, but they've stated that they really want to destroy Google. I feel like they've left a lot of companies by the wayside."

To be sure, many Google watchers are still gaga. Safa Rashtchy, a managing director of investment firm Piper Jaffray, says he expects Google shares to reach $600 by the end of this year. But the big bet behind the lofty share price--that Google can keep up its torrid rate of growth--is far from a sure thing. At last week's close of $363 a share, Google's P/E ratio (stock price divided by earnings per share, a measure of expected profits) is a whopping 76. Compared with the average of about 20 for S&P 500 tech stocks, Google, by that yardstick at least, is way overvalued. "People should not assume that Google will succeed at and dominate whatever it pursues," says Scott Kessler of Standard & Poor's Equity Research. "The company has been trying to diversify but hasn't done a great job at monetizing its new offerings."

To gauge Google's ability to weather the storms, TIME spent several days at the company's headquarters in Mountain View, Calif. It's a unique experience. Set up in 1998 in a Silicon Valley garage (O.K., that part's familiar), Google inflated with the Internet bubble and then, after everything around it collapsed, kept on inflating. Google's search engine--devised by Brin and Page when they were Ph.D. candidates at Stanford--was better than the rest and, without any marketing, spread by word of mouth from early adopters to, eventually, your grandmother. Search became Google; google became a verb. The world fell in love with the fun, effective, blindingly fast technology and its boy-wizard founders. Ultimately, the company even found a business model--advertising--and last year made a profit of nearly $1.5 billion on revenue of $6.1 billion.