Great Googly Moogly! How low can it go?

GOOG is taking a beating in the after market on leaks of a Barrons article (cover maybe) that is going to savage them this weekend. I ended up short again today (accidently, no one wanted my puts at the close) so I have my fingers crossed. Here is a link to what I think will be the final draft: http://online.barrons.com/article/SB113961805110771361.html?mod=9_0002_b_this_weeks_magazine_home The problem the analysts have is that, unless there is a fundamental change they can point to as “new information,” they can’t flip flop positions after just one earnings miss. That’s why every analyst on the planet has been pumping google for 2 weeks, they all had $500 targets and look like morons if this thing actually tanks. Jim Cramer (Dr. UNH) is also the guy who wrote GOOG on his knuckles. There’s nothing wrong with loving a stock but you have to be willing to say the party’s over at some point. You might forget the guy who cost you $2.50 on TXN or $5 on XOM but you will never forget the idiot whose analysis you relied on to buy Google at $450. Don’t forget people pay big money for these guy’s advice! (which reminds me, please visit our sponsors 😎 We’ve discussed valuation before with this stock but it amazes me that, even with the last earnings miss, they are still expected to earn $9 next year. I don’t see how earnings will go from: $1.29, $1.19, $1.32, $1.22 (2005) to $9 this year – A 100% increase every single quarter? It will require $6Bn in additional revenues this year (more than all of Yahoo’s revenues) in order to hit 2006 projections, Google has to take Yahoo’s entire market share while maintaining their profit margins and, of course, not making any mistakes. This is what I feel will ultimately undo Google this year. The company took in $6Bn in 2005 and earned $5 per share – very nice. The same analysts who expect Google to make $9 per share in 2006 project revenues to increase to “just” $6.5Bn. This means that Google is expected to increase margins by over 50% this year. In 2007 they are expected to earn $12 per share on just $9Bn in sales, maintaining the same phenomenal 60%+ margins as they grow. http://finance.yahoo.com/q/ae?s=GOOG What really scares me is that nobody is talking about this. What is it that analysts actually do? Barron’s also makes a very valid point about the advertising. Now that the novelty is wearing off, I find I get many less click-throughs on ads than I used to. I give Google a large percentage of my site’s valuable screen space and for every 1,000 readers, they have given me an average of $5 as less than 1 in 100 people click on a single Google link. Obviously, as soon as I could be bothered, I would rather sell a few dozen specific ads for $100 each through one of 100 services that jobs them out. On the flip side, I advertise on Google as well (experimenting) and that has gotten less than rewarding. I suppose how many little blue boxes can you expect people to read but out of 20,221 ad views yesterday, I got 18 clicks, this is very sad and it maxed out the $10 I was willing to spend for the day. Apparently, Google charges you for being the 94th advertiser on their page and if you want to move up – just pay more. Their rates are up 30% this year and I’m not sure people will pay much more. Another black spot on the horizon for Google is the “Click Fraud” issue. Essentially it is being claimed that as much as 30% of the clicks logged into the system are being spoofed by the site’s owner to pump up their income. While I may not care with my $10/day budget in my experiment, I imagine a major advertiser paying .20 a click or more may be concerned. In addition to this, Verizon and other carriers are getting serious about charging Google for all the bandwidth they use. This could be very unpleasant as well. On the whole, there is a lot of bad things that can happen to this very good company which will give us plenty of opportunities to play the stock both ways this year. Panic selling on the Barron’s article should be just what the company needs to to finally sell off to the 200 dma of $335 so it can, hopefully, begin to rebuild a more solid base. The last real consolidation for this stock was way down at $300 and it is conceivable that we will see this again if we slam through $335 next week (the stock gapped 30 pts below the 50 dma of $430 just 8 sessions ago. I am already short on Google but I would not add to a position on Monday unless the momentum is extreme (I will almost certainly be halfing out at the 200 dma). We have to wait and watch this one and hopefully ease into a nice spread position once things calm down.