Google's Phony Beat

| About: Alphabet Inc. (GOOG)

Google (NASDAQ:GOOG) has reached its Charlie Sheen period. It's #winning, and if you think it's a buy today you're as loony as he was.

The company's latest earnings "beat" is, in fact, anything but. It's the product of some interesting accounting, the recognition of a full year's Federal research credit in one quarter. Take that out and the reported $11.58/share in earnings becomes $10.36. The expectation was for earnings of $10.69/share.

Gross margins for the company are down. Margins are being squeezed. Motorola is not helping. Cost per click, a key metric, is down 4%, and would have been worse had mobile advertising not increased so dramatically.

Meanwhile, the company remains under enormous government pressure. Its proposed deal to settle antitrust charges in the EU is still nothing more than a proposal, and while it's not a global settlement will likely encourage other governments around the world to demand changes, like mandatory links for competitors, that will hurt Google's content plays.

If you're betting on earnings acceleration, you're betting on things like Google Glass, but that is increasingly looking to me like a gimmick, a way to give co-founder Sergey Brin the rope needed for him to hang himself within the company, leaving the way clear for CEO Larry Page to consolidate power. He has, over the last year, been surrounding himself with yes-men and financial types, clearing out anyone else with a vision, and frankly that never works out well.

Not all the news is bad. Google beat Viacom (again) in court, meaning we now have clear rules that will limit the search engine's potential copyright liability.

I am not saying here that Google is doomed. I'm saying that it's overpriced, with a P/E of 24.24, and that based on its real growth prospects it should probably be trading in the 600s. I continue to have 10 shares, having sold my other 10 at $808, and I'm very happy with that profit. You might want to take some, too.

Disclosure: I am long GOOG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.