RedWine
01-30-2008, 04:06 AM
Even as the broader market continues its bear-market bounce, Google is taking it in the teeth. To make sure we had a good handle on what the smart money is worried about, we checked in with some. To wit:
December ComScore bad (discussed in detail here)
Concern that Google is actually serious about spending tens of billions of dollars to become a wireless company (or at least $5 billion or so to buy spectrum).
Recession
Law of large numbers
The recession concerns are valid, as is the "law of large numbers" (although the latter is hardly news--we expect Google's P/E to compress to the standard 25X-30X growth company multiple, and we're now getting there.) The Comscore numbers certainly weren't good news, but they're also just a single month of notoriously noisy third-party data. The wireless concerns are also valid, if short-sighted.
When Google went public, Larry and Sergey were crystal clear that there would come a day when they would make big long-term bets at the expense of short-term performance, and this may be one of them. Investors love to jawbone about how they care about the long-term, building shareholder value, etc., but for most of them this is hooey: When push comes to shove, the majority of investors care about only one thing--today--so the idea that that they might be forced to wait literally years for a multi-billion-dollar wireless bet to pay off is scary.
But we're standing behind Larry and Sergey on this one. If Google sees a big opportunity in using its cash pile to buy spectrum and then force Verizon, et al, to open their networks, they should go for it. The wireless opportunity should be huge, Google has the time and strength to roll the dice, and at some point PC-based search growth will slow and the company will need a new growth engine.
Yes, we worry about focus: Larry's other recent brainstorm--that Google was going to become an renewable energy company--was downright terrifying. The wireless push makes sense, though. Which isn't to say it won't result in Google's stock being parked by the side of the road for a few years.
In what is perhaps the most unusual market move since the 1987 market crash, the Dow soared and Google got smashed--with the stock ending down 6%. What gives?
Earlier, we suggested that the market is finally waking up to the fact that Google will not be immune to a recession. At 40X run-rate cash flow, this is not a cheap stock, so any concerns about the growth rate lead straight to multiple compression.
We reported a worrisome data point to this effect last week, when a prominent search engine marketing firm said it saw a sharp falloff in search spending at the end of December. In the past few days, we've also reported bizarre data in the December search-share numbers: Nielsen and Comscore both show modest Google declines. These should be unrelated to economic weakness and they're probably just noise, but they can't be spun as good news.
And just this evening, Citi analyst Mark Mahaney finds more Comscore data to fret about: U.S. paid clicks:
comScore just released its estimate for Google's U.S. Paid Click growth for Q4 -- 8% Q/Q, which marks a surprising deceleration from the 11% Q/Q growth that comScore reported in Q3. Our and Street estimates assume an acceleration in Google's Worldwide Paid Click Q/Q growth for Q4, a quarter of seasonally strong paid click volume.
The comparison here isn't apples-to-apples. But GOOG reported a 5% Q/Q increase in Worldwide Paid Clicks in Q3 vs. comScore's 11% U.S. growth, and we are assuming 20% for Q4. In Q4:06, Google reported 22% Q/Q growth, after an estimated 6% Q/Q growth in Q3:06.
Bottom line: Last year, Google's paid-click growth accelerated significantly from Q3 to Q4. And now ComScore is reporting that, this year, at least US paid-click growth decelerated.
Don't want to read too much into anecdotes and noisy data points, but as Mark observes, they're all negative.
Google just gave Microsoft (MSFT) and Yahoo (YHOO) the best holiday gift they could ever have hoped for. The two companies have only one chance to remain players in the global search business, and that's if Google gets so big, broad, and ambitious that it takes its eyes off the search ball. And yesterday's much-ballyhooed Google entry into the energy business suggests that this is just what Google may do.
The backstory: Google is appalled at how much damage its power-sucking data centers are doing to planet earth, so it has now hiring an engineering team to produce electricity more cheaply than with coal. Is this noble? Absolutely. Do we hope Google succeeds for the sake of the planet? Yes. Is it a smart business decision? Are you smoking crack?
If Google had merely said it was doing any of the following, we would not be alarmed. Rather, we would be even more impressed by the intelligence and general goodness of Messrs. Page and Brin:
Funding a VC firm to invest in clean tech start-ups
Telling Google.org to invest billions in clean tech
Founding a separate company to create cheap power
Putting more solar panels on the roof.
Alas, Google is not just doing these things. Instead, it is apparently entering a completely unrelated business that has senior management's full attention. How important is this new business to the company? The famously secretive Google even held a conference call to discuss it!
In a follow-up interview with the NYT, by the way, Larry Page provided a quote that suggests that he really does think it is a smart business decision. This is possibly the dumbest thing the brilliant Page has ever said:
Mr. Page, in an interview, said that failing to investigate new businesses could hurt Google more than any potential distraction. “If you look at companies that don’t do anything new,” he said, “they are guaranteed never to get bigger. They miss a lot of opportunities and they miss the next big things.”
Get cracking, Microsoft and Yahoo. This may be the best chance you'll ever have.
December ComScore bad (discussed in detail here)
Concern that Google is actually serious about spending tens of billions of dollars to become a wireless company (or at least $5 billion or so to buy spectrum).
Recession
Law of large numbers
The recession concerns are valid, as is the "law of large numbers" (although the latter is hardly news--we expect Google's P/E to compress to the standard 25X-30X growth company multiple, and we're now getting there.) The Comscore numbers certainly weren't good news, but they're also just a single month of notoriously noisy third-party data. The wireless concerns are also valid, if short-sighted.
When Google went public, Larry and Sergey were crystal clear that there would come a day when they would make big long-term bets at the expense of short-term performance, and this may be one of them. Investors love to jawbone about how they care about the long-term, building shareholder value, etc., but for most of them this is hooey: When push comes to shove, the majority of investors care about only one thing--today--so the idea that that they might be forced to wait literally years for a multi-billion-dollar wireless bet to pay off is scary.
But we're standing behind Larry and Sergey on this one. If Google sees a big opportunity in using its cash pile to buy spectrum and then force Verizon, et al, to open their networks, they should go for it. The wireless opportunity should be huge, Google has the time and strength to roll the dice, and at some point PC-based search growth will slow and the company will need a new growth engine.
Yes, we worry about focus: Larry's other recent brainstorm--that Google was going to become an renewable energy company--was downright terrifying. The wireless push makes sense, though. Which isn't to say it won't result in Google's stock being parked by the side of the road for a few years.
In what is perhaps the most unusual market move since the 1987 market crash, the Dow soared and Google got smashed--with the stock ending down 6%. What gives?
Earlier, we suggested that the market is finally waking up to the fact that Google will not be immune to a recession. At 40X run-rate cash flow, this is not a cheap stock, so any concerns about the growth rate lead straight to multiple compression.
We reported a worrisome data point to this effect last week, when a prominent search engine marketing firm said it saw a sharp falloff in search spending at the end of December. In the past few days, we've also reported bizarre data in the December search-share numbers: Nielsen and Comscore both show modest Google declines. These should be unrelated to economic weakness and they're probably just noise, but they can't be spun as good news.
And just this evening, Citi analyst Mark Mahaney finds more Comscore data to fret about: U.S. paid clicks:
comScore just released its estimate for Google's U.S. Paid Click growth for Q4 -- 8% Q/Q, which marks a surprising deceleration from the 11% Q/Q growth that comScore reported in Q3. Our and Street estimates assume an acceleration in Google's Worldwide Paid Click Q/Q growth for Q4, a quarter of seasonally strong paid click volume.
The comparison here isn't apples-to-apples. But GOOG reported a 5% Q/Q increase in Worldwide Paid Clicks in Q3 vs. comScore's 11% U.S. growth, and we are assuming 20% for Q4. In Q4:06, Google reported 22% Q/Q growth, after an estimated 6% Q/Q growth in Q3:06.
Bottom line: Last year, Google's paid-click growth accelerated significantly from Q3 to Q4. And now ComScore is reporting that, this year, at least US paid-click growth decelerated.
Don't want to read too much into anecdotes and noisy data points, but as Mark observes, they're all negative.
Google just gave Microsoft (MSFT) and Yahoo (YHOO) the best holiday gift they could ever have hoped for. The two companies have only one chance to remain players in the global search business, and that's if Google gets so big, broad, and ambitious that it takes its eyes off the search ball. And yesterday's much-ballyhooed Google entry into the energy business suggests that this is just what Google may do.
The backstory: Google is appalled at how much damage its power-sucking data centers are doing to planet earth, so it has now hiring an engineering team to produce electricity more cheaply than with coal. Is this noble? Absolutely. Do we hope Google succeeds for the sake of the planet? Yes. Is it a smart business decision? Are you smoking crack?
If Google had merely said it was doing any of the following, we would not be alarmed. Rather, we would be even more impressed by the intelligence and general goodness of Messrs. Page and Brin:
Funding a VC firm to invest in clean tech start-ups
Telling Google.org to invest billions in clean tech
Founding a separate company to create cheap power
Putting more solar panels on the roof.
Alas, Google is not just doing these things. Instead, it is apparently entering a completely unrelated business that has senior management's full attention. How important is this new business to the company? The famously secretive Google even held a conference call to discuss it!
In a follow-up interview with the NYT, by the way, Larry Page provided a quote that suggests that he really does think it is a smart business decision. This is possibly the dumbest thing the brilliant Page has ever said:
Mr. Page, in an interview, said that failing to investigate new businesses could hurt Google more than any potential distraction. “If you look at companies that don’t do anything new,” he said, “they are guaranteed never to get bigger. They miss a lot of opportunities and they miss the next big things.”
Get cracking, Microsoft and Yahoo. This may be the best chance you'll ever have.