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Google's Big Miss Just Another Reason to Sell: Pro

Thursday, 18 Oct 2012 | 2:26 PM ET
A sign is displayed outside of the Google headquarters in Mountain View, California.
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A sign is displayed outside of the Google headquarters in Mountain View, California.

After Google shocked Wall Street with a big miss on both revenues and earnings, a top technology investor said it's time to sell shares of the Internet search and advertising leader.

Google reported a 20 percent dive in net income to $2.18 billion. Excluding certain items, the Mountain View, Calif.-based company earned $9.03 a share, vastly underperforming the $10.65 analysts had expected, on average.

(Get the latest quotes for Google here.)

Google also reported net revenue — excluding traffic acquisition costs — of $11.3 billion for the third quarter, below Wall Street's expectations for about $11.9 billion. The tech company has been struggling to turn around a loss-making Motorola Mobility, which it bought for $12.5 billion earlier this year.

(Related: Google's Miss Highlights Big Worry on Wall Street )

Daniel Niles, chief investment officer at AlphaOne Capital Partners, has long been bearish on Google and held a negative position on its stock. After Google's huge earnings miss, Niles told CNBC's "Futures Now " that his firm is adding to the short.

To Niles, Google's problem is that while people are still searching, a growing number of searches happen on smartphones and tablets versus personal computers. On a PC, Google can add multiple display ads into the search results, Niles said. Smartphones and tablets come with a much smaller screen, though, which means Google can't display as many ads. Niles estimates that mobile devices cut down on display ads by up to 50 percent, as compared to a PC.

"More people are buying smartphones and tablets, so this is a big problem for them going forward, " Niles said, adding Facebook and Yahoo face similar issues being as both Internet companies are also largely reliant on advertising. "This switch from PC to smartphones and tablets helps some of the Internet players, like the e-commerce guys like an eBay and it hurts other guys like a Google."

(Watch: Why Google's Big Miss Doesn't Bode Well for Facebook)

Dan Niles: Sell Google on Earnings Miss
Daniel Niles, chief investment officer at AlphaOne Capital Partners, recommends selling the tech stock.

Google's other problem, Niles said, is its Motorola business. Niles noted Apple and Samsung are the dominant players in mobile right now while Motorola continues to struggle. Until Google is able to turn Motorola around, Niles thinks it will be a "big drag on their earnings going forward."

"This is not a pure search company anymore. They have a big hardware business that is under assault from different vendors such as Samsung and Apple, " Niles said. "You can't put the same multiple on that business as you do on their search business."

Looking forward, Niles thinks Google will continue to grow into a bigger company. Niles argued its problem in the near-term, however, will be the many transitions it has yet to work through.



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—Reuters contributed to this report

When this story was published, AlphaOne Capital Partners has long or short positions in (GOOG), (EBAY), (FB), (YHOO), (AAPL) and Niles has long or short positions in (GOOG), (EBAY), (FB), (YHOO), (AAPL).

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