Google's (GOOG) earnings report last week disappointed investors and the stock sold off 8% on the reaction to this negative news. The stock still looks strong on a fundamental basis with a strong balance sheet and priced at under 12 times forward earnings. However, for a variety of reasons I don't view the sell-off as a reason to pick up the stock.
Business description from Yahoo Finance:
Google Inc. maintains an index of Web sites and other online content for users, advertisers, and Google network members and other content providers. It offers AdWords, an auction-based advertising program; AdSense program, which enables Web sites that are part of the Google Network to deliver ads from its AdWords advertisers; Google Display, a display advertising network that comprises the videos, text, images, and other interactive ads; DoubleClick Ad Exchange, a real-time auction marketplace for the trading of display ad space; and YouTube that provides video, interactive, and other ad formats for advertisers.
8 reasons I am avoiding Google at these price levels:
- Online advertising revenue per click fell in the quarter and this looks like it will continue for the foreseeable future as the online advertising market is currently weak.
- Insiders have sold hundreds of millions of dollars worth of shares over the last six months.
- The technicals look week. Google is now under its 50 day moving average and is about to go below its 100 day moving average (see chart, click to enlarge).
- The acquisition of Motorola Mobility MMI is going to cause operating expenses to continue to rise at a time when Google is having problems controlling its own personal costs from its core business.
- In addition to increasing operating costs and lowering margins, the acquisition of Motorola Mobility has opened the door for Microsoft MSFT in the smartphone business. Microsoft's first phone product with Nokia (NOK), the Lumia 710, is generally getting good reviews.
- Google +1, after a fast start, seems to be losing momentum and does not appear to a serious competitor to Facebook as was the hoped during development.
- It appears that Google is looking to expand its presence in China again. Unfortunately that ship already sailed when Google pulled out to the mainland after Baidu BIDU totally gamed the company in search the first time.
- The company faces increasing competition in mobile and cloud computing from both Apple AAPL and Amazon AMZN, both of which have better and more effective management in my opinion.
I think Google has some challenges as noted. However, I would not short the equity due to its strong fundamentals, as stated. If its sell-off continues and gets down to its support level of $480 - $500 (see chart in #3), I would look to pick up at a bargain price.