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It looks like the hype around Google Glass has given shareholders a distorted view of the company’s stock.
Google shares — which closed yesterday near an all-time high of $920 — have risen more than 50 percent since the Silicon Valley giant unveiled its “smartphone” glasses at a developers conference in May 2012.
With the stock rising along with anticipation, some on Wall Street believe investors are being unrealistic about how big a business Glass will be.
The first-of-its-kind wearable device isn’t expected to go on sale until next year and faces an uncertain future at best. The biggest concern is whether it will catch on with average consumers.
Even at the upper range of estimates, analysts predict Google will sell at most two million of the high-tech specs in 2014 — not exactly iPhone numbers and certainly not enough to justify Google’s skyrocketing stock.
Analyst Colin Gillis of BGC Partners said Google’s hardware business, which also includes the Motorola Mobility unit it acquired last year, is unlikely to contribute to the bottom line in the short term.
“You have to look at Google’s hardware efforts as efforts to increase usage of its other services rather than drivers of revenue,” Gillis said.
He wouldn’t speculate on how many Glass devices Google could sell. But combined with its other hardware initiatives — such as building Motorola phones — development and marketing costs are expected to blunt any bottom-line benefits, he said.
Google is reportedly allowing its Motorola unit to spend up to $500 million to promote its new flagship Motorola X smartphone.
So far, costly hardware-building has not contributed meaningfully to Google’s core advertising business.
Motorola shipped 2.3 million phones last quarter, falling short of the number of BlackBerry Z10’s sold, according to IDC data.
While investors swoon over Glass, Google has a more immediate concern — like how it makes money today, according to Gillis.
The company has posted ad-revenue growth of less than 20 percent in each of the past three quarters, a trend that could continue next week when it reports second-quarter results.
Google’s ad-revenue growth last year fell to 20 percent, down from 29 percent in 2011.
The slowing growth explains Google’s push to create and conquer new screens — from smartphones to smart glasses to potentially smart watches.
“The reality is when you’re looking for market share in software, you don’t care about making money on the hardware,” said one industry insider.