All Things Google

There is much debate as to whether or not Google is finally a value stock in the main stream media. Google share price has certainly taken a hit since last October high of $749 to the current $448. Does this make Google a compelling value?

In short, no.

In the context of a bull market, given Google's growth rate and relative valuation when considering its peers, it does seem cheap. But we are not in a bull market anymore. We are in a beginning stages of a vicious bear market. In a bear market, multiple contraction occurrs and no matter how great the earnings or growth prospects are, share prices will suffer. Some may argue that the Google's share prices are at a signficant discount from that of four months ago. True. Google's prices have been discounted by 40% from its peak in October 2007.

What people don't take into consideration is that we are mired in a credit crisis unrivaled since the 1930's and a real specter of a full blown deep recession at best and a depression at worst. I know that the main stream media continues to wax optimism and continue to jaw bone about how there may not be a recession, "just a slow down" in the economy. You can believe what you want but look around you and there are ample evidence that the contrary is happening. But that is another topic for another time, and if you want to be educated, go check out the tickerforum.

Google derives 90% of its revenue and profits from targeted search ad revenue. With the downfall of lending industry related to mortgages and overall slow down in the economy (which is true), there is significant possiblity of real slow down in the search revenue in Google. Additionally, if you haven't noticed, the insiders have been selling their shares at an alarming rate. In an article by Nicolas Brulliard on WSJ Stock Sales at Google Send Shivers states that red lights are going off at this internet juggernaught.

Just today, after the market closed the following transactions were reported:
Dir Doerr sold 32,650 shares
VP Brown 583
VP Rosenberg 315
CFO Reyes 158

I know that Google insiders have been selling for years but the intensity and frequency is increasing. Time to try to correlate this with the recent price weakness. It may show that the insiders are not as fervent about the prospects of the economy and the company itself.

Additionally, today there was reports of EU approving the Google Double Click deal by March 11, 2008. I wonder in a time when companies should hoard cash for the upcoming economic slow down, if this buy out makes much sense. Only time will tell. It is certain that the market has voiced their opinion. I do not think the Google share prices will recover any time soon.

The stock continues to be a major whipping boy in the market. Doug Kass has cautioned that a $6 billion stock repurchase will be soon announced at Google. Does this make sense in light of increasing competition and a major acquisition of You Tube which has yet to monetize its content and the Double Click? Time will tell but for now, I believe Google has further down side to come. If you don't believe me, why not check out what happened to Cisco during the dot com melt down.