How many times can this game be played? Google’s (GOOG) business strategies are questioned, recent acquisitions look less desirable, and doubts arise about the company’s ability to grow advertising revenues. All the while, the stock price meanders. Then: Voila! A nice, big earnings report drives up the price and silences the critics. However, the party soon ceases, and the cycle begins again.
The problem is that once-a-quarter happy time cannot offset the rest of the realistic quarter. The same management making the same mistakes over time makes a lousy investment. How bad is it? The stock performance since the market's 2009 bottom tells the story:
For all the fanfare Google gets, its stock performance is pathetic. It has followed Microsoft’s (MSFT) underwhelming trajectory, trailing the Nasdaq by one-third. Google needs to point to its $85 IPO price or to weak competitors like Yahoo (YHOO) to be judged a winner.
Couldn't the stock enter a new growth phase?
Of course, but such a shareholder-friendly occurrence almost certainly requires a management change. Will the board consider doing so? Highly unlikely. Such a dramatic step invariably requires proof that management harmed the company, not that it squandered multiple opportunities. Moreover, Google's advertising "cash cow" can cover up many missteps.
The bottom line
Don’t be taken in by Google’s glowing earnings report. The bright lights will likely dim again as realistic observers return to point out the company's flaws. Meanwhile, shareholders seem to be in that dreaded "dead money" pit.
Disclosure: I am long AAPL.
Additional disclosure: Positions held: Long U.S. stocks and U.S. stock funds
