Google: Definitely Feeling The Pressure
Google's trading range over the past year has been pretty staggering: $417.50 a year ago today. A high of $635.96 last week; and hardly a straight line up between that low and high.
That hasn't been the case these last couple of months where shares have been on a tear: That $500 price tag in August was $131 ago, so it's safe to say there's a fair amount of euphoria surrounding these shares ahead of today's third quarter earnings.
But is that euphoria misplaced? I don't think so, as long as investors have a longer term time horizon than merely the quarter to quarter vagaries that have characterized these shares.
The same could be said for eBay but in reverse, where time seems not to be eBay's friend.I wrote yesterdaythat there was every indication that the company would beat the Street and that shares would rally. Yet longer term, there's a healthy skepticism on Wall Street that this company might have peaked, or is near peaking, and therefore a rally in the shares might be short-lived.
I certainly thought that the after-market rally would last longer than a day, but that should be the strongest indication yet that skepticism about that company reigns supreme, despite the stronger-than-expected fourth quarter outlook from the online auctioneer. Investors and analysts are already looking ahead to the first few quarters of next year and there's a lot of concern that eBay's prospects will only dim.
A converse story at Google: The Street today is looking for $3.78 a share on $2.94 billion. Expectations for Google are always tricky since the company doesn't offer any meaningful guidance and I've detailed before the tricky cat and mouse game Google analysts play with the company--with investors caught in the middle.
This time around, a number of analysts I've talked to are skeptical the company will meet the EPS number. There's a concern that the company's hiring continues to be more than merely robust (1,200 new workers is a good number to look for today), which could torpedo margins the way that news did last quarter. And with such a heavy rally into the news later today, there's the worry of a classic sell-on-the-news set-up.
But patient investors might be rewarded if they can look ahead by a few quarters; and we got a hint as to why when Yahoo reported earlier this week. If the DoubleClick deal passes muster with the Feds, it puts Google in the fastest-growing sector of internet revenue: Display advertising is going like gangbusters; Yahoo's President Sue Decker pointed to uncharacteristic momentum in that very segment of the company's business on the company's conference call this past Tuesday. And this is a sector Google doesn't even play in. Yet.
If the DoubleClick deal gets done, that could mean enormous new revenue for the company. Same goes with YouTube. Despite the ongoing copyright infringement suit from Viacom , Google is coming up with creative video advertising deals which could also mean this non-performing asset may finally begin performing. And that's good news. Not today; maybe not even next quarter. But eventually.
Piper Jaffray's Gene Munster tells me the Google we know today will be a lot different than the Google we see three years from now. That's also good news. This company continues to break the law of large numbers; a renegade doing to the net and new media what it could also end up doing for your portfolio.
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