Friday, March 10, 2006

Invest on the Future

Hi Google!

About one year ago, when GOOG (Google Inc.) was at $180, I talked to some friends that it was the time to buy. Very few people took the action, but I heard one of them received a good harvest. The story was spred in a small circle. It made my name was recognized by someone whom I did not know at a conference. While, the lucky prediction for GOOG really brings me some good feelings.

After GOOG crossed $350 line, I hardly paid attention to it. The first time I looked it seriously was when it dropped to $400 at the first time. I began to talk to friends about its web advertisement and compare it to the new MSN. As more complains from web site owners I heard, I lost more my confidence on it.

If we open up for Google at Yahoo Finance, we can see its 1 year target is $476.31. I don’t know how analysts could calculate this number with 2 digits after decimal point, but I do know that the number is based on the estimated future earning. So now the question is “Can Google keeps its revenue growth rate?” or “How could Google make their revenue growing?”

Today, Google’s P/E is at 68.31. To keep the current price at such ratio, the company has to have a bright future, a big promise and a big growing potential. We all know that the major revenue resource of Google is its web ads. At current market, with strong competitor such as Microsoft MSN and Yahoo, It is reasonable to doubt its potential. According to the recent news, its CFO admired, Google is slowing down.

I talked to a friend who owns a web site and has deep understanding on the web advertisement. According to him, many small advertisers may not benefit from their web ad or not satisfied with the services. It means Google is loosing customer and revenue.

Today, Google agreed to pay up to $90 million to settle a "click fraud" lawsuit. Compare with its revenue, $90 million is a small number, but the psychological impact is big. Would there be another one?

One thing caught my eyes also. Google’s CEO and CFO have sold some shares recently. If there is no other explanation, I would consider it as a negative sign.

My discussion above has leaded us to almost conclude that: the Google will keep going down. But wait, Google has the power to turn the down trend up. It has a good balance sheet and 8 billions cash. There are many ways to affect the market. The easiest way to change the stock price is to buy back shares. The 8 billions can change the price a lot.

Today, its closing price is $343. From technical point of view, tomorrow is a key day. The first resistant point is about $340. If the price crossed $340, it will toward to the next point which is $300; if it can get support from it, there will be a bounce.

On either situation, I think the next two days are good entering point for short term players.

Without concern the big cash, I would say Google is on its down trend. Based on its fundamentals, Google’s reasonable price should be $250.

There is another factor that I am not clear yet. GOOG’s institution holder’s ratio is only 37.9%. I don’t believe regular people can own a lot of it. So who does own the rest? What would their pattern of behaves be?

With the extra concerns and uncertainties, I am hesitated to provide a clear direction.

I encourage you to read the incoming quarterly report, probably the next quarter too, and pay attention on the revenue. No matter what, it is the key to determine the future of Google.


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