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Google's $500 Retreat: And That May Be An Understatement

Monday, 4 Feb 2008 | 4:27 PM ET

With all the attention we lavish on Google as it breaks through one stock-price plateau or another, it seems only fair to cover the company's stock as it retreats as well. Retreat might be an understatement.

This one hurts: Google was careening its way toward $800 a few weeks ago, reaching a high of $747.50 in early November. There's a list of price targets well above that.

But since then, a slumping stock market, worries about a recession, the sub-prime mortgage mess and how it might affect a search company like Google, a "disappointing" (at least according to some on Wall Street) earnings report, and then news on Friday of the hostile, $44.6 billion, Microsoft bid for Yahoo. Google shares were already on the decline before that deal was announced, but it's safe to say that the downward spiral accelerated.

And it continues today. We watched Google pass through $700. Then $600. And today, through $500. The fall has been precipitous, steep, and frightening for Google shareholders. Today's bad news comes from Goldman Sachs' decision to remove Google from its "Conviction Buy List" due to its poor year-to-date performance against the broader market.

Google's shares are down 25 percent compared to the 5 percent decline on the S&P. But curiously, the firm still rates Google a "buy" and that's likely because it hasn't seen these share-price levels since August.

Something else: Google's forward P/E sits below 20 for the first time in recent memory as well. Which is astonishing. Say what you will about the Microsoft hunt for Yahoo ; and what it may or may not do to Google a year or two or three from now. The fact is, Google's sitting pretty. Growth might be slowing, ever so slightly, but CEO Eric Schmidt took careful pains to point out he's not seeing macro-economic weakness. The momentum downdraft sucking Google's shares down with it might be just the buy-opportunity nervous tech investors have been waiting for.

Maybe Google's complaints over the weekend about anti-competitiveness from Microsoft suggest the company is more concerned about a deal than it's been letting on. But I'm not buying it. Let Microsoft and Yahoo, and News Corp., and Disney , and AT&T and private equity fumble about trying to figure out where a deal makes the most sense. Let them all be distracted by the siren calls from the belle of the ball.

Meantime, Google will continue to spend its time having a great ol' time on the dance floor; innovating, eating up market share, signing new clients, getting into new businesses. Clamoring about the anti-trust concerns a deal for Yahoo could cause no matter who buys it--whether they do or not.

And while everyone is so distracted, Google sits back, head down, hard at work, laughing all the way to the bank. A market predator. In a good way. No matter what this might mean for the consumer down the road, today it's a hell of a strategic business story to watch unfold.

This may not be a bottom for Google, but it sure smells like it's close.

Google Raises MSFT Red Flag
Google offers Yahoo help, with Charles Di Bona, Sanford C. Bernstein & Co. sr. software analyst; CNBC's Jim Goldman & Dennis Kneale

Questions? Comments? TechCheck@cnbc.com

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