Tuesday, January 31

Another Lesson from Google...

Fair warning people, if you also read my e-Clippings blog (that goes for both of you), you'll see me post this there as well...let's just say I am fired up. Wanna know why? Try looking here. What you'll see at that link is a bunch of stories about how Google's stock took a monster hit today (12-20% depending on what time you're looking at). Why? Because the company ONLY reported a 4th quarter growth in profits of 82%!!!! Shameful!! Their net income was $372 million compared with $204 million last year. Their crime? They missed economic projections. Because of some tax issues, etc. blah blah blah. They are still approx. 20% ahead of Yahoo! in market share.

Why is Mark fired up about this? Why am I so upset that I'm speaking in the third person? Because how in the world are you supposed to convince ANYBODY to invest in anything as hard to touch as the value of learning when these freaking idiots are willing to dump Google stock when its profits only rose by 82%!?!? I swear to you, the short-sighted nature of the American Stock Market is both staggering and appaling. I don't even own Google stock and yet I am horrified by these reactionary market spasms. Someone tell me what fundamental of Google's business changed by 20% overnight? NOTHING!!

You (present company and readers excluded of course) knee-jerk, reactionary, no vision, short-term, Gordon Gecko wannbe, fundamentals ignoring, panic stricken, ridiculous caricatures of humans! I swear you will be the death of innovation and creativity in the American marketplace if not the world!

7 comments:

Frank said...

Mark. You would be even more upset to know that Google fell another $50 after US markets closed today. The truth is that GOOG is grossly overvalued even at this present level of $381 per share. The earnings dissapointmet was just a wake up call to investors who have been paying a PE of 96 and a PEG of 2.26 for the stock. At around $200 per share, it will be a marginally good deal again.

Mark said...

Frank,

You're right on both counts. I listen to CNBC as well and know the arguments for the overvaluation of GOOG. My argument is both with the thinking that got us to that position and the very same thinking now that is ripping back that value.

There is a serious lack of rational thought at work when this happens. While the ratios do point to a bloated price, I have serious doubts if the market reation today was a collection shake of the head by the investment community with the "oh man what have we been doing here?" kind of mea culpa and was really instead the market reacting irrationally again just in a different direction.

Both the rise of the stock and its fall are indicators of a short-term mentality that leaves little room for long-range planning or thought.

Dave F. said...

Another way to look at the gyration is that Google, like anything else, is worth what people are willing to pay for it. That's the short-term view, anyway. "Should" it be $85 a share? $285? $585? It depends on how you define value.

A P/E of 96 means, in one view, you're willing to pay $96 for $1 in earnings this year. (Not me, but you know what I mean.)

In another, you're betting that the current price will rise quickly enough to give you a return you desire. (My crystal ball's in the shop.)

During the dot-com boom, I knew coworkers who were financial cheerleaders, tracking their favorites hourly (if not oftener).

You can't nag the stock market as a whole into rationality. You can only make your own investment decisions. I know Mark knows this; I'm just agreeing.

Anonymous said...

As a long-time Microsoft employee, I know all about stock value going nowhere amidst stellar company performance. Sometimes I wonder what it will take to convince Wall Street that Microsoft is still making tons of money and shows no signs of slowing down...

prateek said...
This comment has been removed by a blog administrator.
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