Google: Finding the Bottom. $350? Less?

Lots of chatter this weekend about where a bottom might be for Google. After all, the stock has weakened largely in anticipation of poor upcoming results, not because it has drastically underformed expectations yet.

Let’s say, however, the search company is set to perform less well, at least for a couple of quarters. That seems a reasonable assumption, as I’ve written here a number of times recently. After being a Google bull for a long time here — and I’m still a long-term fan — I pulled in my horns late last year, partly because of how belated financial services companies were being in slowing spending, and partly because of the company’s miss (and poor explanation) on its last quarterly numbers.

So, where could Google stock go from here? Well, it all depends, of course, on how bad things get. If the company makes or beats its first quarter numbers, which are likely to be announced around the end of April, then the stock will recover straight away, burning the shorts. If it misses mildly, then the stock’s performance will depend on the guidance. Good, and it maybe losses a few percentage points; bad and it goes down 10% or more.

If we miss materially — say by 5% or more — then we could, however, easily a major Google air pocket. How much of a fall in the latter case? If the stock were to fall to low-20s-times trailing earnings, basically giving Google credit for industry growth and then treating the earnings outlook as a crap shoot, we could see GOOG back to $350 or so. Not a pleasant worst case scenario, but such scenarios never are.


  1. proales says:

    So what is the possibility of some good ‘ol fashion revenue smoothing going on with GOOG over the next few quarters?

  2. GOOG is a one and half trick pony. The own the search market, and the own the ad market. If either one of these things change, they are going to have to adapt extremely quickly or fade. If someone comes along with a better ad model (see and publishers/advertisers move over, that spells big trouble. If someone comes along that does search better (semantic queries, etc), that also is a big, albeit slower threat. Of the two the first threat is much bigger and more dangerous. As the average web user becomes more and more savvy, click per impression will start to fall off. I for one have never clicked an adwords ad. I don’t even consciously see they are there anymore.
    When any or these threats seriously has a chance of impacting GOOG is anyones guess, but they are there and I hear no one addressing them, which is worrisome.

  3. Please see
    for a brief description of a financial technique that can scale the heights of spikes, rapid stock movements, like REM, when the eyelids of the market flatter, but they don’t know whom to flutter. Its hilarious.
    We met and exchanged ideas at Stanford MIT LAB, during a Semantic Web presentation. The one you had to leave in a hurry, facing the market storms alone and unafraid. Una Freud, spanish psychoanalysis, for latin american markets, preferably in the native language of the country, such as local crops, local medicine and food products, some precious stones, some gold, a basket of an offering to a priest of God for the good life. Let the good times roll. Lets take out a roll of good times and read from that roll, act from that role, write to that scroll.

  4. Soren: that’s certainly true about Google being a 1.5 trick pony, but 2 points to make here:
    1) Microsoft and Apple are also effectively 1-2 trick ponies. Where would Apple be without the iPod? Sure they’ve gained market share on the desktop/laptop, but still…
    2) I don’t think CTRs will go down. I’ve been working on the web for quite awhile now and have seen no evidence of this. Yes, you and I never click on ads, but put yourself in the shoes of the AVERAGE internet user.
    That said, if GOOG drops to $350, I’m buying.

  5. My opinion it´s going up from here, you can confuse with valuation, politics and search-engine business and results is at the end of the day is that you still don´t know where it is going or not.
    The one need good, reasonable recognized pattern>