Android Is Soaring, So Why Are Google Shares Sinking?

Google's shares have fallen 15% in the last three months while the S&P 500 has traded flat. This share price decline seems odd when contrasted with the spectacular success Google (GOOG) has been experiencing with its Android mobile OS. Android has proven so successful that it has moved from smartphones to tablet PCs to laptops, and its market share has surpassed that of Apple's (AAPL) iOS, according to several studies.

Part of the problem is that investors are skeptical about what Android means to Google's financial future. Google has seen a slowdown in the growth of its core search business. It doesn't have much to show for its stream of M&A deals, nor from products like Google Maps, Gmail or Google Apps. Its expansion into China has stalled due to trouble with the government in Beijing and the strength of local search engine Baidu (BIDU). Its annual revenue run rate is $34 billion, compared to $29 billion for the 2010 calendar year. And while Microsoft's (MSFT) search alliance with Yahoo (YHOO) is still a distant second in terms of U.S. market share, the world's largest software company seems bound and determined to pick up some portion of Google's customer base.

Android is open-source software, which means smartphone and consumer electronics companies don't pay Google to use it. Analysts believe that Android may spread adoption of Google's search engine on mobile devices. But it has been broadly assumed that Google would do well in the mobile world regardless as PC users transfer their search habits to wireless devices.

Many investors are also concerned about Google founder Sergey Brin replacing Eric Schmidt as CEO. There's a great deal of uncertainty about whether either man holds the key to unlocking Google's next big revenue-creating opportunity.

What is certain is that, despite its extraordinary adoption rate, Android hasn't impressed Wall Street.

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