Ready for the Google Blood-bath?

[competentone]

The article this weekend in Barron's (available online free this week: http://online.barrons.com/article/SB113961805110771361.html?mod=9_0002_b_this_weeks_ magazine_home ) is likely to cause a lot of activity in the stock on Monday. With the Feb. options expiration next Friday, the whole week will probably be pretty wild -- in the downward direction.

I hope nobody here is long; I'm wishing I would have bought more put options, but probably won't be complaining about what I'll make on the ones I already own.

Has anyone else here been waiting for the Google bubble to burst?

[djmcmath]

Do you really think Google will drop? If it does, I'm getting in. Google is about innovation. Google does new and interesting things that other people haven't done before. They've also broadened their horizons some from simply a search.* Maps, mail, chat, and who knows what's to come. They're positioned on a global stage as an entity that's moving forward.

(shrug) But then, I'm probably wrong, I usually am.

Dan




*Note that "simply a search" is a bit of an understatement. Not so long ago, a good searcher needed to be familiar with the usage of at least 3 different engines to havy any hope of finding what he wanted. Today, "google" is synonymous with "to look for." I have friends who say, "I googled all over the house for my shoes, and can't find them." That's dominance, imho.

[SlowToady]

Originally posted by Wayne at Pelican Parts
Although I use Google all of the time, I really feel like there could be better solutions developed out there. Google's claim to fame can potentially very short lived. As soon as someone creates a better search engine with more friendly technology and better results, then word of mouth will spread, and Google may quickly lose it's position. It's not like they are Walmart, with a huge, expensive infrastructure that would take years, and billions of dollars to develop and deploy - their position is potentially tenuous...

-Wayne

I respectfully disagree. Google has the best of everything and they are running wildly away with it. They have the best (search) algorthims, the brightest minds in mathematics and computer science outside of the NSA, and their distributed computing model is unequaled, in my opinion, anywhere. The only DC model that could compete would be an AlphaCluster, and it would cost an order of magnitude more than what Google has built.

You're right, they aren't providing a product, like Wal-Mart, but they have a MASSIVE infrastructure of computer networks that will cost a huge capital investment to duplicate. And then you have to network them in such a way to provide Google-like performance, or faster. They are providing a service that is not easily reproduceable. The cost to reproduce Google may not be in the billions, but it is very easily into the hundreds of millions.

I predict Google is going to be around for a very long time, and I serioulsy don't think anybody else is going to toss them off the top of the Search Engine Hill.

[89911]

Don't you think Ebay should have some competition eventually? Someone should put up the cash and fund a competitor long enough for it flourish. It just doesn't seem fair for them to have such a monopoly on that market.

[Wrecked944]

Originally posted by SoCal911SC
What's Jim Cramer been saying about Google lately?

Cramer says Sell - or at least don't buy for now. He sez the company has lots of long term potential and can go to $500. But the CEO can't tell the story properly. So for the short term it will be a dog.

[turbo6bar]

Cramer says buy buy buy sell sell sell back the truck up beep beep beep.



Is this really worth a current P/E of 72??? Is GOOG the best stock that market has to offer? As with commodities, I would not touch GOOG.



Here's what Cramer has to say:

Mad Money Recap

NO, WE CAN'T BACK UP THE TRUCK WITH GOOG, BECAUSE WE'VE GOT THAT GUY ERIC SCHMIDT - I THINK THE SCHMIDT DISCOUNT IS GOING TO BE WITH US FOR SOME TIME. I THINK THAT GOOG CAN GO TO $425 - NO MORE THAN THAT. I SAY IT CAN GO DOWN ANOTHER 10; THAT'S 10 UP, 10 DOWN; 30 UP - JUST A PUSH FOR ME RIGHT HERE. IF IT GOES ABOVE 400.00, SELL, SELL, SELL! BECAUSE I DON'T LIKE THE WAY MANAGEMENT TELLS THE STORY.

On 2-6-06, GOOG closed at $385.18. In after hours trading for 2-10-06, GOOG trades at $362.61

Cramer 2-02-06 Close $395.64

I STILL THINK THAT GOOG CAN EARN MAYBE 9.00 TO 9.50. MAYBE EVEN 10.00. I THOUGHT THAT WAS ONE OF THE WORST CONFERENCE CALLS THAT I'VE EVER HEARD. ERIC SCHMIDT, TAKE THIS (KNIFE CUTTING SOUND). I'M STICKING WITH A BULL POSITION, BUT NOT AS BULLISH AS BEFORE.

Cramer 1-25-06 Close $433.00

BULLS MAKE MONEY, BEARS MAKE MONEY. HOGS GET SLAUGHTERED. I ULTIMATELY THINK THAT GOOG GOES TO 500.00 AS A PIT STOP TO 600.00, BUT I DO BELIEVE THAT WHEN THE QTR. IS REPORTED NEXT WEEK, THERE WILL BE MINDLESS SELLING JUST LIKE WE'VE HAD ALL WEEK AFTER A GOOD QTR. BOTTOM LINE IS: LET'S TAKE A LITTLE BIT OFF IF YOU'RE WORRIED.

Cramer 1-23-06 Close $429.24

THEY DON'T LIKE THE SPLIT GAME, THAT'S NOT THEIR STYLE. USE THE RULE OF 10'S. I'M NOT CHANGING MY PRICE TARGET - I STILL GOES TO $500, BUT THAT'S NOT THAT EXCITING.

[Wrecked944]

Originally posted by turbo6bar
Cramer says buy buy buy sell sell sell back the truck up beep beep beep.

That's why I love him. I've been shorting him every morning for three and half weeks and have been up higher every week (even last week when I got killed the last two days). I hope they crank up the volume even MORE so his viewers will get more frenzied and do more mindless buying. Cramer is a natural born day trader giving advice on long term investing and the cognitive dissonance can be dizzying. I hope he keeps his viewers dazed and confused so I can short them every day!

BTW - The episode where he trashed the Google CEO was hilarious. You didn't quote the part where he said, "Why am I the only person who says bad things about CEO's? It's because I have a lot of money and I can get away with it."

Hilarious!

[jyl]

Of course, they could all be shorts . . .

On GOOG, they do seem to have the most imaginative management among their peers, a powerful brand, and a terrifically profitable business model in a high-growth industry. So no question it is a very valuable company, but the stock is already very richly priced. Technological leadership is seldom durable, so I don't think much of their supposed algorithmic superiority. Investor expectations are still very demanding, forget the consensus estimate, buysiders still expect $10+ EPS in 2006 and $15+ in 2007. The stock is still trading on newsflow, not on valuation. The chart looks broken w/ next support $340-ish, then $300-ish.

[competentone]

Originally posted by jyl
On GOOG....and a terrifically profitable business model in a high-growth industry. So no question it is a very valuable company...

You've concluded that Google is "terrifically profitable," but I question whether or not Google really is profitable at all. Taking their numbers at face value, they look profitable, but digging deeper into those numbers raises serious questions.

They haven't been expensing the options they've been giving to employees consistent with the new accounting rules. They have "side-stepped" the rules by calling the options "Google stock units" rather than "options." If they're called to task by regulators on this item alone, restating their earning will show that they are not profitable at all -- they would in fact be losing money.

Serious questions also surround the issues of click fraud. Google won't say what percentage of their revenue could be the result of click fraud. If, as some have argued, 20% of Google's revenue is the result of click fraud, and if this fraud were to be eliminated -- for example, by a system where Google only charges customers for clicks where they capture the IP address from the computer doing the clicking -- Google would not be profitable at all. (For a little more on click fraud, read this Washington Post article from April 2005: http://www.washingtonpost.com/wp-dyn/articles/A58268-2005Apr16.html )

Yes, Google's search engine is useful, but I question the long-term effectiveness of the "Pay-Per-Click" advertising business model. It can probably work well in applications where the business owner can measure the percentage of sales that follow though from the clicks, but poses major problems for the more traditionally marketed products -- this is where the big advertising money is. I just don't see Google ever posing any threat to traditional advertising media. They've built a nice search engine, but have a serious lack of knowledge about advertising, marketing and business.

[on-ramp]

if the "big boys" want it to reach 500, it will go to 500.

there is a small group of players that control the market, they have all the money and the rest of us are along for the ride. Wall St. is such a scam.

[island911]

gotta argree w/ Wayne here (barriers to market, ect). Though, it seems to me that Google has it's sights on the same place Microsoft wants to be (online software).

Insightful, I know.

[Wrecked944]

Does anybody here really understand the options market? I ask because I just checked the GOOG calls for Feb17 and they make no rational sense to me. For example, the $250 call went up $3.50 yesterday while the $260 call went down $12.10 and the $270 went down just ten cents. But the $280 call went down $4.90 - so the options appear to have almost no relation to the price fluctuations of the underlying stock. WTF?

[competentone]

Originally posted by JanusCole
Does anybody here really understand the options market? I ask because I just checked the GOOG calls for Feb17 and they make no rational sense to me. For example, the $250 call went up $3.50 yesterday while the $260 call went down $12.10 and the $270 went down just ten cents. But the $280 call went down $4.90 - so the options appear to have almost no relation to the price fluctuations of the underlying stock. WTF?

Most options are relatively thinly traded, this can result in fairly large spreads between the bid and ask. If someone wants to open or close a contract, they are going to have to just about meet the ask or bid to get their order filled.

The price you see for an option quote is also from the last trade for that option. If the underlying stock moves up and down sharply during one day, some options will show a last trade from when the stock was moving up, others will show the trade from when it was moving down. Looking at the end of the day, the activity can look contradictory, but it isn't if you were looking at the times of the trades and comparing it to the price of the stock at that time.

You are also looking at options that are going to expire in five days -- the Feb. GOOG options. Volatility can get pretty crazy as the expiration date approaches.

Here is some reading if you're interested in learning more: http://www.optionsclearing.com/publications/risks/riskchap1.jsp

[competentone]

Originally posted by on-ramp
if the "big boys" want it to reach 500, it will go to 500.

there is a small group of players that control the market, they have all the money and the rest of us are along for the ride. Wall St. is such a scam.

If you are really serious with that remark, I can only say you need to learn a lot about the stock market.

[Wrecked944]

Originally posted by competentone
Here is some reading if you're interested in learning more: http://www.optionsclearing.com/publications/risks/riskchap1.jsp

Thanks! That was very seriously helpful. I've been trying to figure out options for the past two or three weeks and so far all I've gotten is a headache!

[cegerer]

Wayne's correct. Unlike eBay, Google can be easily & quickly replaced. I deleted them a few weeks ago after they capitulated to the Chinese government. I haven't looked back - there're lots of great search engines out there - and it hasn't affected me in the least. eBay, on the other hand, is truly the only game in town.

[RallyJon]

Think back to when you first used Google. At the time, Yahoo and the other search engines were dominant. I switched to Google because the search results were "real" as opposed to the ad-dominated establishment. True or not, that was my perception and the perception of millions of others who were tired of their eyeballs being sold by the evil Yahoo.

Now Google's reputation is quickly going down the toilet with the group that matters most--users. They have sold their soul to advertisers, the search results are less relevant and more manipulated that ever. Who cares how many pages you have cataloged if the first two pages of any search are filled with fake vendors and keyword spammers?

[stevepaa]

I keep asking myself when will the advertisers wake up and realize no one is really looking at the ads.

But I guess they are all afraid to miss a chance to sell.

[turbo6bar]

Down $16 by mid-morning. Currently $347

[competentone]

Closed down almost 5%; the rest of the week should be interesting. If I were long Google I'd be very scared with the CEO making comments like the one in this week's Time magazine interview:

"SCHMIDT: The company isn't run for the long-term value of our shareholders but for the long-term value of our end users."



For more of the interview: http://www.time.com/time/magazine/article/0,9171,1158956,00.html