Google (GOOG) has been on a bearish run as of late. Let's explore the beginning of this and what we can expect from the company going into 2013.
Google's Summary of Google's fall from Grace
Its third-quarter results missed expectations even though the company showed strong growth. While profits slide 20%, revenue was up 45% mainly due to the incorporation of Motorola's hardware unit. There were a couple key issues here:
Revenue excluding Motorola slowed for the fourth consecutive quarter, dipping to a growth rate of 19% from rates of more than 20% for the past few quarters.
Motorola also revealed a bigger-than-expected operating loss.
The center of the troubled revenue drop was its biggest revenue engine-ads on its web search engine and YouTube have steadily dropped since 2011. Prices for the ads have declined and that is the problem as advertisers try to switch to mobile ads. Facebook (FB) a competitor has also been evolving into mobile ad sales. Motorola lost $527 million. Google has said that it plans to cut costs at the division, including by laying off 20% of Motorola staff, or 4,000 jobs.
Marketing to the Next Billion
The transition from desk top to mobile advertising is tough, but have you considered how large companies like Google will reach out to the billions of people in third world countries without smartphones or desk top computers? This is what you can expect from the company as it reaches out in 2013.
What will the global future look like in the mobile app world? Imagine a third world country like the Philippines where many people do not have a computer, but they may have a phone - maybe not a detailed smartphone but one that can access the internet regardless. Without a data plan, what if these users could access the internet and view things like Google products, email, and Google Plus? Well it is possible and it is the future of global mobile marketing. This service is real and it is called Free Zone with the long-term intention of having customers upgrade to better phones and plans. Facebook is also trying to grow this market. It developed something called Facebook Zero. It is a text version of its service. In Africa, the number of people on Facebook jumped 114 percent in 18 months.
Is an Internet Change Coming for Google?
The FTC has been investigating claims of Google for "ranking its own services higher than those of competitors, for signing exclusive agreements to provide search services to online publishers and for making it difficult for advertisers to compare data about campaigns running on rival sites." The Federal Trade Commission is pressing Google to resolve the antitrust probe or face a lawsuit. It will be interesting to see how this may affect how Google ranks sights in the future.
Investing in Google
In the short term, I do not see any reason for the stock to turn around from its present direction. The catalyst that sent it down is still the same. Until we see results next quarter, I do not see a significant turn around in the stock. I see no bullish catalyst. Therefore the best I see is a possible trading zone of long peaks and valleys for the near future. For longer-term investing, I would advise investors to watch how Google transitions into the mobile app arena. It may take a few quarters, but I believe revenue will pick up here as we experience this morph from desk top advertising to mobile advertising. Transitions take time and Google is on top of this.
Google's fall from grace after it peaked in early October is no surprise, just observing the indicators, one could see it coming. For six weeks, the RSI indicator showed over-bought conditions continuously. It was just a matter of time before the stock would have to turn itself around. At the same time we observed over-bought conditions, the MACD was forming its own negative divergence. Usually, this is also a sign of directional change or at least consolidation if it stands on its own. Currently the stock is in a bearish pattern and I am interested in seeing how steep it will drop. It pushed through the lower Bollinger Band on its one-day drop, and since then has moved inward with a bearish lean. But all indications point to a continued bearish move.