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 wiggles
One Winged Angel
 
Registered: 11/09/05
Posts: 2,387
Last seen: 8 days, 5 hours
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 EU approving Google buyout of Doubleclick
#8115213 - 03/07/08 08:51 AM (5 months, 27 days ago) |
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Am I the only one who thinks this is a dream come true? Thanks to the recession we're in, google's stock price has plummeted down to less than 440$ a share from over 750$ in 2 months. Also, google has implemented sweeping changes to get rid of fraudulent click-throughs which means a lot more of their ethereal assets will start becoming hard revenue.
Now, 2 days ago the EU announced they will be planning to approve Google's buyout of doubleclick within the next week - with no constraints (source: http://www.bloomberg.com/apps/news?pid=20601087&sid=awhfy4gbScEc&refer=home). There is still a possibility that Microsoft will appeal the decision (and they almost certainly will), but this seems like a great chance to get a solid stock for a lowlow price. Especially considering that doubleclick was the biggest advertising/analytics service out there besides google's adsense platform... after the merger google will control more than 80% of online advertising.
Thats pretty goddamned amazing. Anyone else have any thoughts?
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You can turn your back on a person, but never turn your back on a drug, especially when its waving a razor sharp hunting knife in your eye.
Hunter S. Thompson
Edited by wiggles (03/07/08 08:53 AM)
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 geokills
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Registered: 05/08/01
Posts: 13,155
Loc: city of angels
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 Re: EU approving Google buyout of Doubleclick [Re: wiggles]
#8115548 - 03/07/08 10:42 AM (5 months, 27 days ago) |
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Having recently sold out of my Google position just above $505 a share, I do have some thoughts. The DoubleClick merger is indeed fantastic news. The fact that Google has implemented "sweeping changes to get rid of fraudulent click-throughs" I don't think is as solid for Google, as they gained a lot of revenue from those clicks. For the advertisers, this is definitely a good thing.
Now for the long term, I don't think Google is a bad bet at all. They are one of the most profitable and highest growth tech companies on the planet (not to mention cheapest, on a price to earnings growth basis). However, there are two strong headwinds I see to Google's advancing stock price. They are the law of large numbers and supply dilution.
- The Law of Large Numbers. Though Google admittedly offers fantastic growth upwards of 30% annually... the fact of the matter is that as Google grows, it cannot sustain its growth rate over time. For example, if you sell 10 apples one day, it's not too hard to grow by 50% the next day and sell 15 apples. But once you're at a level where you're selling 100,000 apples a day, you would have to sell an additional 50,000 apples the next day to maintain that same 50% growth rate.
Big investors tend to look for one thing above all else: growth! One of the best measures of a stock's value is its Price to Earnings Growth (PEG) rate. You can figure this out by taking the Price to Earnings (PE) multiple of a stock, and dividing by its growth rate. Google is growing at around 33%, with a PE of 32.5x. This means that it's PEG is just under 1.0, which for a high growth stock is darn cheap! Often, a stock with accelerating growth will fetch up to 2 times PEG, and is considered exceptionally cheap if its PEG is 1.0 or below.
Aside from the general market pressure, particularly in the technology sector, one of the main reasons Google's stock can't find a bottom is because it is no longer offering accelerating growth. Due to the law of large numbers, it is a decelerating growth stock. That then leaves money managers to guess at how quickly Google's growth will slow over time, and since no one really knows, no one wants to pay up for the stock anymore.
- Supply Dilution. When Google IPO'd in August 2004, it floated 19.6 million shares (the float is the amount of shares available for trade). A secondary offering added 14.2 million. The purchase of YouTube a year later added another 3.2 million. Insiders have added to the float through automatic steady selling. In the first year following the IPO, insiders sold 14.6 million shares, last year they sold another 1 million. In essence, the market has been flooded with a supply of Google shares. Demand was strong enough that it didn't matter, as Google kept blowing away earnings estimates every quarter. But now Google's growth rate is slowing, and a stock that initially offered 19.6 million shares for trade, now offers over 180 million only a few years later!
There are two ways for Google to work around this... either start blowing away the estimates again to help bolster demand, or execute a heavy stock buy-back plan where it purchases its own stock and thereby reduces the float (reducing supply). Google doesn't want to do this because they want to invest their money in their operations. But if Google's stock continues to fall, more employees with options priced below the current price may decide to cash out, diluting the supply even more.
Now for some technical analysis...
1. 20 & 50 day moving averages. 2. Chart with Bollinger Bands
 
Google has been trading below it's 10, 20, and 50 day moving averages for practically all of 2008. That is a strong sign of a downward trend, and unless you like to take on a lot of risk, it's kind of like trying to catch a falling knife if you buy in right now. Of course you want to be the first one in at the bottom, but the problem is, we can't tell where the bottom is. If you plan to hold this one for years, then by all means, this is probably a great place to begin building a position... and there is probably a fairly good chance of a short-term bounce (up to middle bollinger band in the second chart avove). Nevertheless, the stock could have further to fall before it stabilizes and begins to trade above its 20 day moving average again. The 10 day moving average appears to be the current resistance that the stock will jump up to, and then get hammered down upon reaching. Until it can break that trend (and ideally, until it can break through the 20 day moving average), I would be very careful.
All that being said.. I like Google. I first bought their stock around $280 / share and made a handsome 50% return. I got involved again at $497, watched it shoot up to $750, and subsequently fall back near my basis before I cashed out at around $505. It was foolish of me to have had such a large gain on paper, and yet I lacked the discipline to sell pieces of my position as the stock appreciated in value. Live and learn... I still think Google is a great long-term investment. It is a company with no debt, tons of cash, offering a very high growth rate, and has the most market share in its industry versus all of its competitors. These things will lead to price appreciation over time, and while $430 a share has me salivating to get back into the stock - I would not commit a large sum of cash at this level, unless you see the stock begin to "behave" better, as noted in my technical analysis above. At $400, I will probably begin to rebuild my position.
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Madtowntripper
Sumbeams From Cucumbers
Registered: 03/06/03
Posts: 12,412
Last seen: 2 hours, 37 minutes
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Re: EU approving Google buyout of Doubleclick [Re: geokills]
#8115565 - 03/07/08 10:46 AM (5 months, 27 days ago) |
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Thanks for that explanation, I enjoyed that.
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geokills
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Registered: 05/08/01
Posts: 13,155
Loc: city of angels
Last seen: 6 minutes, 17 seconds
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 Re: EU approving Google buyout of Doubleclick [Re: Madtowntripper]
#8115680 - 03/07/08 11:28 AM (5 months, 27 days ago) |
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You're welcome. 
I am still learning a lot, so it is a good experience for me to publicly explain myself - for feedback and hindsight critique.
I couldn't do it for every stock, but Google is one of the ones that I keep a very close eye on.
It really is a fantastic company. In a sane world, its stock would never go down! 
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┼ ··∙ long live the shroomery ∙·· ┼
...╬π╥ ╥π╬...
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Madtowntripper
Sumbeams From Cucumbers
Registered: 03/06/03
Posts: 12,412
Last seen: 2 hours, 37 minutes
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Re: EU approving Google buyout of Doubleclick [Re: geokills]
#8115784 - 03/07/08 12:01 PM (5 months, 27 days ago) |
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I was interested to hear how much Google stock is out there. I never knew a company had hundreds of millions of shares of stock floating around.
That is a crazy amount of money!
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geokills
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Registered: 05/08/01
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Loc: city of angels
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Re: EU approving Google buyout of Doubleclick [Re: Madtowntripper]
#8115835 - 03/07/08 12:15 PM (5 months, 27 days ago) |
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Shares Outstanding x Stock Price = Market Capitalization
Market Cap = What a company is supposedly worth.
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┼ ··∙ long live the shroomery ∙·· ┼
...╬π╥ ╥π╬...
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wiggles
One Winged Angel
Registered: 11/09/05
Posts: 2,387
Last seen: 8 days, 5 hours
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Re: EU approving Google buyout of Doubleclick [Re: Madtowntripper]
#8115837 - 03/07/08 12:16 PM (5 months, 27 days ago) |
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Thats all part of what I'm considering. I've been investing into google with dollar cost averaging for about the past year... not very much, but a little here, a little there. Right now its pretty much putting me at a glaring loss. However the acquisition of doubleclick is going to give them 80% of marketing and advertising on the internet. Thats a *lot* of income. I'm just trying to figure out how much worse the economy is going to get... a large part of google's income is from people not just clicking through, but also buying something. In rocky times, people may click through, but they aren't going to buy. I'll still keep investing but its certainly something to keep an eye on 
Right now google is at a really fortunate place of being one of 3 online companies I can think of who are the "synonym" for their business. Ebay for auctions, amazon for books, and google for online searches. We don't tell someone to search for something, we tell them to google it.
Thats pretty darn powerful. Also, considering that the first revenue stream most websites turn to these days is either adsense or doubleclick (also soon to be google)... I can't see google dissapearing. Not to mention the android is supposed to be promoing this year...
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You can turn your back on a person, but never turn your back on a drug, especially when its waving a razor sharp hunting knife in your eye.
Hunter S. Thompson
Edited by wiggles (03/07/08 12:19 PM)
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 Irradiated_Feces
doomedgeneration
Registered: 07/11/03
Posts: 3,995
Loc: Great White North
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Re: EU approving Google buyout of Doubleclick [Re: wiggles]
#8116577 - 03/07/08 03:55 PM (5 months, 27 days ago) |
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Google ain't all good. "If a path to a better there be, it begins with a full look at the worst" http://www.google-watch.org/
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Some people are like Slinkies - not really good for anything, but you still can't help but smile when you push them down a flight of stairs.
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