GOOG - Sector: Technology - Industry: Computer Services

[David Randolph]

Jesus, I had to almost double my usual exposure to one stock to sell 100 shares short of GOOG.

Can you explain what this means David, I dont understand?  You wanted to sell 50 short but it had to be 100 for some reason?

You're right, I could have sold just 50 shares, but since I prefer to trade in lots, I sold 100 GOOG shares. It makes us see how small we are

[tokyopua]

Jesus, I had to almost double my usual exposure to one stock to sell 100 shares short of GOOG.

Can you explain what this means David, I dont understand?  You wanted to sell 50 short but it had to be 100 for some reason?

You're right, I could have sold just 50 shares, but since I prefer to trade in lots, I sold 100 GOOG shares. It makes us see how small we are

LOL, with GOOG that is true!  I bought 100 shares back in 2005, luckily profited on them back then, but it was a big chunk of change for me lol.

Anyway, maybe there is something here for me to learn.  Is a "lot" defined as a multiple of 100, and is there some advantage to trading in lots vs. say in this case just 50 shares?  Or is it more psychological for you?

[realcoolhead]

Shorting Google .....

Why do I fear so much on shorting? Even when I have a winning position, I still feel differently. When I am sitting on a winning long position, I feel happy and hopeful, yet when I am sitting on a winning short position, I feel happy yet nervous. Am I the type that should just stay long or in cash...

Sorry for the the irrelavance, I just want to see if anyone else has the same feeling and maybe I can figure out how to stay more comfortably in "shorts". 

[nullzero]

Realcoolhead I would just look at a short position as a short to medium term long position. Once you are up on a short position you are already on the winning side of the trade so no need to worry.

[Lucas Scott]

I think $100 a share profit is there for shorts who entered near the $510 high. I believe $410 can happen, but below $400 GOOG would seem really really cheap. It's trading at less than 24x forward earnings with growth that's a lot higher than 24%.  Revenue growth from Q405 - Q406 was 67%. Bottom line growth was much higher. I kind of think GOOG right now might be where MSFT was in the late 80's or early 90's. Great companies usually get to enjoy more than 2 years of stock price success.  In the short-term though, GOOG will go where the overall market goes.  Markets continue down, so will GOOG.

[David Randolph]

Anyway, maybe there is something here for me to learn.  Is a "lot" defined as a multiple of 100, and is there some advantage to trading in lots vs. say in this case just 50 shares?  Or is it more psychological for you?

Yes, a lot is a multiple of 100. There's advantage in trading in lots, some brokers charge a higher commission if you don't buy lots (multiples of 100 shares) and in some stocks you get a worst price than the current market price, like you're trading in another market (market makers are even more entitled to rip you off when you trade in odd quantities).

But in GOOG that problem doesn't exist, as many people trade in fractions of a lot and it is a very high priced and liquid stock.

Shorting Google .....

Why do I fear so much on shorting? Even when I have a winning position, I still feel differently. When I am sitting on a winning long position, I feel happy and hopeful, yet when I am sitting on a winning short position, I feel happy yet nervous. Am I the type that should just stay long or in cash...

Sorry for the the irrelevance, I just want to see if anyone else has the same feeling and maybe I can figure out how to stay more comfortably in "shorts". 

It is unnatural to be short, since an investor is someone that buys stocks. In being short we're not investors, we're traders. In my view, we're traders that still want to have a profitable year, even though a bear market is probably unfolding.

But being a trader doesn't mean one has to be a short term trader. You can't look to intraday quotes, especially on a stock like GOOG, that changes a lot during the day (in $ terms, not in % terms).

You're already winning, so calm down. If you want to, decide you won't lose money on this trade and put a buy to cover stop at your entry price (but that's not my recommendation).

Anyway, I see GOOG going down $50 next week (starting Monday), so I guess there won't be a problem with your stop

I think $100 a share profit is there for shorts who entered near the $510 high. I believe $410 can happen, but below $400 GOOG would seem really really cheap. It's trading at less than 24x forward earnings with growth that's a lot higher than 24%.  Revenue growth from Q405 - Q406 was 67%. Bottom line growth was much higher.

Hi Lucas Scott, so nice to read things from you, thanks

GOOG's analyst estimates on Yahoo point to EPS of $14.25 in 2007. So the forward earnings multiple is 30.8, not 24 as you wrote (unless you're considering 2008 numbers).

The problem is the company will probably miss those estimates, I believe, by a lot, because as the economy slows down, GOOG's business will slow down a lot more, as it relies almost solely on advertising revenues.

I kind of think GOOG right now might be where MSFT was in the late 80's or early 90's. Great companies usually get to enjoy more than 2 years of stock price success.

There's just a problem with your thinking Lucas Scott. The market cap comparison. In 1990 MSFT was about a $4 B market cap. GOOG's market cap is already $136 B, that is, 34 times larger than what MSFT's was.

If GOOG were to rise the same amount as MSFT did since 1990, it would be a $4.6 trillion market cap in 2024 or so. $4.6 T is about 40% of the size of the entire US economy, so you can pretty much guess that is absolutely impossible.

In the short-term though, GOOG will go where the overall market goes.  Markets continue down, so will GOOG.

Yep, I agree.

On the title of this analysis I talk about $100 profit, but that doesn't mean I'll get out there, because, if GOOG goes down 50% in this bear market, which for me would be a natural thing to happen, it will go down not $100, but $223.

I want to see how the economic slowdown plays on GOOG's revenues and profits. Here at www.3stocksonfire.org we're already feeling the effect of a sharp slowdown in Google ads revenue, which were cut by more than 50% from a few months ago, even as the website got more traffic and clicks on the ads

I'll continue holding GOOG short, as the stock technically broke down below a very important long term ascending trendline.

[realcoolhead]

Thanks nullzero and David. I think I just have to work on adjusting my mental problem with short positions --- thinking they are just trading positions not investments.

David, it looks Google is not very transparent about sharing revenues? Do they not tell you the "formula" of how you get paid? Sounds like dishonest business from Google side...

I want to see how the economic slowdown plays on GOOG's revenues and profits. Here at www.3stocksonfire.org we're already feeling the effect of a sharp slowdown in Google ads revenue, which were cut by more than 50% from a few months ago, even as the website got more traffic and clicks on the ads

I'll continue holding GOOG short, as the stock technically broke down below a very important long term ascending trendline.

[David Randolph]

David, it looks Google is not very transparent about sharing revenues? Do they not tell you the "formula" of how you get paid? Sounds like dishonest business from Google side...

There's no transparency at all, nobody knows the formula how revenue gets split. Most people think it is about 50/50, others think it is 60% for Google and 40% for content providers. They can change the formula whenever they want.

Our Google ad sense revenues declined to 1/3 of what they were and that can be because companies on the ad words program are paying less and less per click, or because Google dramatically increased its share of the pie. I think it is the first hypothesis (or both combined), but either way, not good for the company over the long term (for example, we're already considering taking the ads off, they're not worth it).

The fact is Google had 2006 revenues of $10.6 B and net income of $3.08 B, almost all of it coming from advertising from small and mid size companies. Advertising is the first thing companies cut in times of economic uncertainty. If the company fails to meet 2007 projections, inflated expectations will need to come down to earth. This scenario means the share price will be cut in half to me.

Have a nice Sunday

[David Randolph]

Instead of collapsing to the downside on Monday, GOOG actually recovered a bit of ground.

As I see it, this move was a normal pullback to the broken support line, after that gap down at the open. What was support is now an important resistance level.

As of today, that trendline stands at $444, and I wouldn't like to see GOOG closing above that level, just from a short term technical point of view.

Over the medium term, fundamental analysis tells me the stock is quite expensive in the face of what I expect to be an economic recession in late 2007, early 2008.

I'll continue holding GOOG short.

[Lucas Scott]

If GOOG were to rise the same amount as MSFT did since 1990, it would be a $4.6 trillion market cap in 2024 or so. $4.6 T is about 40% of the size of the entire US economy, so you can pretty much guess that is absolutely impossible.

Good point David.  Yeah a stock price expansion like that would be impossible. I still see GOOG as being like MSFT circa 1990 in terms of where the company is in its development. MSFT in 1990 was known for one thing -- the desktop operating system (DOS then Win3.0). It wasn't until later in the decade that they penetrated the server software market, Microsoft Office became a standard, Internet Explorer was developed, and MSN was built. GOOG right now is all about search. But with the amount of cash they have on hand and the cash flow they generate, in 5 years they might be just as well-known for things other than search, and be raking in crazy amounts of cash from it.

[David Randolph]

I agree Lucas Scott, Google still has a lot to give to the World, it is in its early stages of development.

But, at this moment it is a $142 B company relying almost exclusively on online advertising for its revenues and profits. My take is those revenues are going down this quarter, and will go down even more for the next couple of quarters.

If we consider the chart, the stock made a perfect double top pattern, with a downside target of $391. Yesterday the stock had a strong rally, but that seems like a throwback to the broken neckline.

My plan is to hold GOOG short for as long as it closes below the descending trendline on the chart, currently at $470.

[tokyopua]

Looks like GOOG is up pre-market from an analyst upgrade.

---------------
NEW YORK (Dow Jones)--Google Inc. (GOOG) shares rose 1% to $461.90 before the
opening bell Wednesday after UBS upgraded the Internet search giant to buy from
neutral, saying the stock has reached a price that makes valuation
"compelling."

  Analyst Benjamin Schachter also said in a research note that while returns in
longer-term initiatives - such as payments, mobile, video, display and other
forms of advertising - could take more time to develop, "the fundamentals in
the company's keyword search business justify a buy recommendation at current
levels."

  Schachter kept his 12-month stock price target at $560.

  Shares of rival Yahoo Inc. (YHOO) were also up, rising 20 cents to $31,
following a report saying the recent upgrade of its search-marketing system,
known as "Panama," appears to have stabilized the company's previously
declining share of spending on search advertising and improved the performance
of ads for large advertisers.

  According to a report scheduled for release Wednesday by search-marketing
technology company SearchIgnite and RBC Capital Markets, Yahoo's share of
spending hit a low of 17% in January during its transition to the new system
but then held steady and rose to 18.1% recently.

  During 2006, Yahoo's share of search dollars declined steadily from 46% at
the start of the year, as spending shifted dramatically to rival Google, the
report shows.

[David Randolph]

Thanks for reporting the "news" Tokyopua, as usually people that bought based on that recommendation are losing, at least for the short term.

GOOG ended up closing below the neckline I have on my chart. That is bearish, but since it will probably open higher today, perhaps it will have the power to meet the descending trendline at $468.78. I'm not willing to let go of this GOOG short all that easily, as I believe the economic slowdown will have a greater impact on GOOG's revenues than anyone can imagine at this stage. As I've repeatedly said we're already feeling such effect here at 3 Stocks.

I would like to own GOOG short until it releases 1Q results (probably before April 15), and maybe I will. For now the plan is to hold GOOG short whatever happens.

[David Randolph]

GOOG closed a gap it had opened yesterday and again, it closed below the neckline of the double top pattern. I see its fundamental trends deteriorating throughout 2007, not just because of Yahoo's Panama competition, but because a slowing US economy will feel its effects first on advertising.

I'm losing 1.96% on this GOOG short sale, but I plan to hold it for at least a couple of months, since I speculate 1Q results will be well below estimates.

[David Randolph]

My GOOG short sale is more fundamentally based than other short picks currently in the Main Portfolio. From GOOG's latest 10-K form:

«Advertising revenues made up 99% of our revenues in 2004, 2005 and 2006.»

Advertising is usually the first sector to feel the effects of a slowing economy. 3Stocks is already feeling this slowdown, as its advertising revenues from being a Google content provider fell to 1/3 of what they used to be.

Competition is also appearing from Yahoo and its Panama technology, as Yahoo looks to have an increasing role in this high profit margin area.

I'll continue holding GOOG short, probably until mid April or so.