"The investor community has largely been focused on the top-line and bottom-line numbers, and they look pretty good," said Brian Wieser, an analyst at Pivotal Research. "But the stuff in the middle is telling a different story."
Wieser, who has a "hold" rating on the stock with a $580 price target, said that there is margin erosion in Google's core business. The company is keeping more of every dollar it earns and eventually that will likely backlash on the stock, he said.
"As the network cull comes to an end, the trend begins to reverse," Wieser said. "It's got to end sometime, it's hard to say which quarter it will be. But at some point it will matter."
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Google has also made big pushes into new product categories with its investment in things like wearables, cars and drones. Its move into these areas will eventually increase pressure on margins.
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"Operating margins should continue to fall due to the company's expansion into activities beyond self-service paid search," Wieser said in a recent note to clients.
"While absolute profits and cash will continue to grow, the disconnect around the degree to which Google will grow absolute vs. percentage margins is probably not fully incorporated in the market at this time."
Google's non-GAAP operating margins in the last quarter stayed relatively flat, but will likely decline to 41.8 percent in the first quarter versus 43 percent margin last quarter because of the company's seasonal operating expenses, said Mark Mahaney, an analyst at RBC Capital Markets, in a recent note to clients.