Who Will Seize The Day?

Posted: March 17, 2006 in Uncategorized
Not very long ago, GOOG was heading to 500 (hit 475.11 on Jan 11th).
Then, GOOG did an abrupt about-face and plummeted toward 300 (337.83 on Feb 15th), only to spike just under 400 on Feb 28th, only to have the bottom drop out these last few weeks.
Talk about a nose-bleed rollercoaster ride, eh?
Problem is, everyone is right about GOOG… bulls and bears.
GOOG had gotten ahead of itself.  $2b in quarterly revs means an $8b run-rate.  A generous 12-to-1 Price/Sales ratio would mean a market cap of $96b… just about where GOOG is now.
On the other hand, GOOG deserves to be ahead of itself.  I was taught that a "reasonable" P/E approximately mirrored annual growth… so, if your company was growing at 10% a year, you would command a P/E of 10.  GOOG’s bottomline seems to be doubling, yet its future P/E is trading at less than 28, which feels like a howling bargain.
So, how do you make heads or tails of GOOG’s stock performance?
First — as the world’s most optimistic guy about online advertising — realize that we’re in a long-term up pattern… and companies like GOOG, YHOO, and MSFT are going to benefit.
(Along with this realize that MSFT, YHOO, but in particular GOOG, really have phenomenal operating performance… these are real companies with real growth and really great profits.)
Next — here’s the squishy one — figure out which side, bulls or bears, has "seized the day."  That usually explains mania movement in stock price.  Clearly, the bears have been more vocal since GOOG’s last earning announcement.
Finally, assess the information that each side is, well, assessing. 
Poor George Reyes (I mean that figuratively — with his stock options, he’s hardly poor <smile>)… he says some pretty standard, reasonable things about big companies and growth at a recent investors conference — even emphasizes his continued bullishness for the GOOG business — and, BLAM, GOOG is down 10% or so.
The now infamous Barron’s article a month or so ago was so generic as to question why it was even written.  Its premise?  That if GOOG missed its earnings, the stock would go down?  Geez, if any company misses its earnings their stock is going to go down. 
Imagine if Barron’s wrote the converse:  "Hey, if GOOG surpasses earnings, the stock could go up!"  At the time, though, I’m not sure that would have sold as many papers.
Bottomline:  GOOG will report continued growth this year, helping the bulls "re-seize the day." 
What else would you expect the most optimistic guy in the world about online advertising to say?
P.S.  The final weirdness about the Barron’s GOOG article? 
Someone from Marketwatch or TheStreet did a follow-up story with the lead bear analyst in the Barron’s article.  He said he was interviewed the day GOOG hit 475 and that all of his comments pertained to GOOG at a market cap of about $140b.  By the time the Barron’s article had come out, GOOG had already dropped 100 points — not only making his comments moot — but the analyst had already publicly revised his position.  That doesn’t look good for traditional paper-based journalism.

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