Google: A Buy On MSFT/YHOO News?

The times are indeed changin'. I put some lyrics from the epic Bob Dylan song about change at the end of my post on who ends a web service this morning. But they are apropos to the news from the big Internet companies over the past 12 hours. Wow.

Google misses the quarter on soft revenues and blames it on the one area they don't have a dominant franchise - social networking.

Now Google's two biggest competitors look to be teaming up.

This could mean a big drop at the opening for Google. Investors like to dump first, then analyze then decide what to do about it.

I think Google is so well positioned that I'd look to buy some more today. I may well do that myself.

A combined Microsoft/Yahoo will have 30% market share in search and maybe they can do something with that. Clearly there are big synergies in merging Yahoo! and Microsoft's online businesses. The merged entity will be dominant in email, which is an important category that isn't going away.

Lots to think about. I love this business. Just when you think you've got it figured out, everything changes.

Comments

[Tom B]

Three words: AOL/Time-Warner.

But even worse: if the deal goes through, it will be a HUGE gift to Google. All Yahoo's users will remember how badly MSFT managed HotMail and will migrate to GMail. Millions of people (like me) who set Yahoo as their homepage since, maybe 1993, will switch to Google.

[Lisa]

Thomas -- didn't understand your comment. What do you think are the implications for TWX?

[Tom B]

AOL / Time_warner: an example of of a really, really stupid merger. And it was easily predictable that it was stupid before it closed.

[Adam Sharp]

Glad I waited to pull the trigger, was considering buying before earnings. Now Google looks even cheaper. PEG is below 1, that seems crazy.

I'm a search-marketer by trade, so I've seen the difference in how MSFT/YHOO and Google run their operations. There's no comparison. Google has the best platform by far.

Merging YHOO/MSFT ad platforms is gonna be ugly, unless they just decide to scrap Microsoft's.

[User 86999]

GOOG PEG is low because its growth is overestimated @ 25%; but I'll be monitoring the right entry point, but not because of MSFT YHOO deal. If the deal goes through, Microsoft should get the synergy value (yes, most of the millions of users don't care what linux means, so their loyalty to yahoo will remain intact under the new facade), which means I'll be monitoring MSFT for a good entry point too, just because of the synergy.

[Tom B]

"Microsoft should get the synergy value (yes, most of the millions of users don't care what linux means, so their loyalty to yahoo will remain intact under the new facade"

Care to make your meaning clear? You think people use Yahoo as a home page because they like LINUX? I do it out of habit, having been on the web since 1993 (well, 1977, actually, but that was before web browsers-- or Yahoo or MSFT).

And no, their won't be synergy. Synergy can be measured mathematically. If the deal goes through, we can sit down a year later and look at some balance sheets and I'll show you how there was no synergy.

[Adam Sharp]

Hi Thomas. Please explain "GOOG PEG is low because its growth is overestimated @ 25%".

My take - They only missed avg earnings estimates by .01 after you remove stock option costs, they missed revenue by $60 million or 2%. One of the big factors for the quarter seems to be that they had to Myspace a bunch of cash in Q4 as part of their $900 million ad deal (was triggered by minimum payment clause).

Check out the conference call, they refer to the Myspace (or unnamed partner site, just guessing it's Myspace) payments as something that's probably just a one-time 4th qt event. Hopefully they won't make that mistake again. They're also doing a lot of ad-experiments to figure out what works on social media sites. It's not like search, harder to monetize and will take a bit to nail down.

[Adam Sharp]

Oops, that was a comment by anon, not Thomas.

[David Lentz]

While I agree that a YHOO-MSFT combo poses little threat (and possibly a gift) to GOOG, I think that this is the wrong time to buy.

Google is seeing a slowing of growth in advertising revenue as we head into a very challenging economy, moving in the direction of (if not actually into) stagflation. I would hold off a bit on buying GOOG on dips, as the dips are likely to increase in frequency and scope. Wait until it looks like the end of western civilization is at hand.

To those who are dreaming that we may yet escape recession, the pending queue of mortgage defaults (both homeowners and commercial properties), $4/gal (if not $5) gasoline, soaring medical costs and rising unemployment can be mistaken for nothing but a looming recession, the exit from which is not yet apparent, as the Fed seems unable to do anything but ease the economy into it will a string of huge rate cuts, which will end up only exacerbating inflation, but are needed to save the banking system, which is hanging on to respectability (and confidence) by a thread.

There will be in the coming weeks or months opportunities to acquire GOOG at much lower prices than one can today. If nothing else, look to the typical summer slump, and plan your purchases for the July-August time frame. Things might go worse from there, but that should be a lot lower entry point than we are at today.

[borisb]

microsoft knows what its doing.

[User 86999]

@ Adam & David:
Thanks David, you've pretty much explained the reason why I said, google was overestimated in its growth. I completely agree with David, we're not at a good entry point yet.

@Thomas:
I'm just sharing an educated guess on synergy in a dispassionate cold way. I can smell the anti-MS sentiment, but as techie as I am, my interest here is to invest and make money, not to bash MS, or Windows, or anything else. Sure, time will tell, if MS can find some synergy there. If I do put my money on it, I hope I'm right about the synergy factor, or maybe I'll have to reconsider about this before I invest; now that you put me in doubt. ;-) Peace ...

[CHAZ BATES]

ok now everyone has me confused if i should buy microsoft and yahoo or not? I was looking at AEO, JNJ, Etrade,POT, EAT AND YUM. Anyone hhad any takes on what they would maybe invest in for the long or short term? i have 4,000 to invest in it?

thanks,

Chaz

[User 86999]

Buffett likes JNJ, and I'm considering it. POT and ETFC are also on my list. If I split evenly, I'll pick GOOG for the fourth in my basket.