Why Today Could Suck for Tech

Make sure the lifeboats are ready. Cue the band to play on the poop deck. Google (GOOG) will report quarterly earnings today, and if they're disappointing, the Internet sector will be going down like a toy boat in a flushed toilet.

Some analysts are already pushing down estimates. Others are holding tight and thinking the stock -- already down 45% this year -- will bounce back up into the 500s. In the midst of the financial meltdown, CEO Eric Schmidt told the world that Google should be fine. Wall Street isn't so sure. Google closed yesterday at $339.17, down 6.5% on the day. 

Compared to its competitors, Google is doing great, continuing to sweep in a greater portion of search advertising market share. But that's why Google could whack the whole Net industry. If the company is hitting on all cylinders and leaving competitors in the dust, and its earnings STILL disappoint -- what hope is there for any Internet company?  This would be the harshest confirmation yet that Net advertisers are cutting back in a significant way. And over the past five years, just about every consumer Web site has been built using an advertising model. If ads aren't there to drive revenue, nothing will be driving revenue. And, you know, that's going to suck for a lot of companies.

What's the prognosis? I'd say: not good. Google is no IBM (IBM). It doesn't have long-term contracts and recurring revenue streams. It's got a self-administered ad platform that advertisers can use to turn off the spigot overnight, knowing they can turn it back on the second things look better. I'm not saying Google's earnings are likely to be terrible -- they're just not likely to be good enough to ease investors' minds about ad spending.

With any luck, I'll be horribly wrong and Google will pleasantly surprise all of us. Lord, I hope so.

Comments

[Roger Knights:]

The advantage Google has is that advertisers aren't advertising speculatively, as with ordinary ads; they're paying for the delivery of sales prospects who've indicated an interest in their product by performing a search and clicking on a link. I think this will be "stickier" (less likely to be cut).

2008 Oct 16 06:05 AM

[GoogleDoubter:]

Google stock is very risky if you didn't purchase prior to January 2005.

Google has only one stream of verifiable revenue. Google has only one stream of verifiable profits.

I purchased Google stock in September 2004 and sold in December 2007. I have been shorting the stock ever since.

Google has serious problems in selling their "business applications" into both small businesses as well as larger enterprises. Other than the former Postini, all other Google business applications have been a resounding flop in the marketplace.

Google is that one trick pony and therefore not a good stock to own, at least at these levels.

Maybe a buy again at $200 per share?

2008 Oct 16 07:04 AM

[sickofthebull:]

Sour grapes maybe? Seems that whomever doesn't own G expects (or hopes) it to fail. However, they are not to be underestimated. Their entire vision and outlook is unique and innovative.. they define their category, they're even a verb! Companies like that don't just dry up and blow away without tapping on their inherent talents in order to imagine, and then innovate the next out of sight concept. Ordinary thinkers are only able to expound upon what has already been conceived, and ordinary thinkers are only able to see as far as what is already known. Google is in neither of those categories, and for those reasons, they will always surprise and surpass any prior expectations. The lagging "value" of their stock is in no way relational to the value of their comapny. I would hardly count them out, even when their numbers have fallen due to market pressures and panic in the herds who listen to pundits' who are also a herd unto their own. Forward thinkers have been given no reason to walk away from Google.

2008 Oct 16 04:45 PM