Google’s stock price closed yesterday at $291, the first time it has dropped below $300 since 2005. It’s 44% off of its 52-week high of $725. Most analysts think its cheap and getting cheaper – the average price target is still over $500. Former analyst Henry Blodget, however, thinks it could fall to $200 (I prefer the bullish version of Blodget myself).
One analyst we track closely, Mark Mahaney of Citigroup, was bullish on the stock a month ago. On October 13, he issued a report that had a price target of $590 based on then current data. He noted that Google was the market leader in “the most dynamic part of Internet advertising – search,” and was rosy on video and display advertising growth opportunities.
Yesterday, however, Mahaney issued a new report, dropping the target price to $450.
What changed? It wasn’t the loss of the Yahoo advertising deal, which analysts had discounted well before Google walked away. No, what’s changed is the economic outlook, which has deteriorated more than most of us know.
Mahaney, like all analysts, talk to as many direct sources as he can. Every quarter Mahaney checks with search marketing executives to get their outlook for the coming quarter. In October the signs were mixed. Advertising spend in the financial, retail, travel and housing verticals was weak, but pharma, CPG, entertainment and technology was strong.
A month later Mahaney, notes in his report that we are going into “almost surely the worst economic environment in our collective lifetimes.” And the tone of the messages from search marketers has changed dramatically. He says “We didn’t uncover a single source that thought business trends were going to improve in the foreseeable future” and “Search marketers almost universally expect this Q4 to be the weakest they have ever experienced.”
Depressing stuff. And worst of all, it’s not just display ads that are being cut for non-performance. The downturn is starting to affect search spend as well, which is universally considered to be the most secure form of online advertising: “one of the savviest marketing executives we have come across, noted that almost all of his marketing budgets are being cut, with even his Search budget being severely scrutinized for the first time.”
The scary thing is that we’re talking about Google, which has the ability to withstand just about anything the economy can throw at it right now. But that’s not the case for the rest of the Internet, even the public companies. Google is sneezing, but everyone else just got the flu.
They can and will meet or even beat everybody’s expectations once again next time around… They have a lot of room to play with and can squeeze out additional income from various other operations. So what if there is a slow down… It is just temporary. As low as it is right now — buy buy if you are a believer. They have the technology to stay at the top though and continue the growth globally, as for Yahoo and some of the other companies… The struggles will continue. Blah.
Best,
Mike
http://www.wannadevelop.com
That room to play with is not that big to start with, as their side operations you refer to are very very costly: they’ll be in for a rough ride next year, with eCPMs dropping and their inability to monetize video content.
Despite the economy being very bad, we are living better than ever then in any period in the history of the world.
Just think of it, we have access to so much information via the Web, as well as hundreds of gadgets and technologies to make our lives and work more efficient.
Even the poor who live in industrialized nations, have cell phones and mp3 players color TVs and nice clothes.
In terms of entertainment, it is 24/7. We do not have to leave our homes.
So in a worst case scenario, there may be less single person households as people move in together to share the rent.
There may be less eating out and more cooking at home from scratch.
There may be less impulse spending as we enjoy our gadgets for as long as they work, without the pressure to discard them for the latest craze.
We may resist the temptation to visit Starbucks for their pricey coffee.
We may walk more or take public transportation, as opposed to driving everywhere. We may get proactive about taking care of our health to avoid expensive illnesses
But bad economy or not – compare life NOW to ANY time during the previous decades
I Agree. And beside it, the economy will get over this on too. As it did before
http://www.amazooz.com
That was a simply outstanding post. Nice!
Tom
Without wishing to sound like a Luddite, that’s highly subjective view of “better”.
True, the information access of the web is a seismic shift. But the 24/7 on-switch and the blur between Work and Life is not welcome for everyone and actually makes some people’s lives worse.
Plenty of new gadgets simply overload us with more crap, rather than making us more efficient.
Indeed, evidence points that in fact, prior decades *were* better than now – life expectancy could be falling…. See: http://blogs.ws...us/?mod=WSJBlog
“Despite the economy being very bad, we are living better than ever then in any period in the history of the world.”
This is definetely wrong statement. Alternative Index of Inflation – goggle it.
Mike – what do you expect ?
The world cant loose close to $3 Trillion dollars – thanks primarily to shithouse financial regulatory policies in the US and the US’s love for ridiculous NINJA loans (what the FK where you thinking!?) – and assume that everything on the Internet is going to remain rosy.
Google depends on marketers, marketers depend on consumers/businesses buying the product they are marketing. If the later dries up, the first is going to dry up as a consequence.
Wait for Obama to implement new financial policies. Market confidence needs to regrow. Consumer spending will start slowly again (hopefully not as fast as previously which was the fking problem in the first place. Borrowing money they couldnt pay back. Who needs that HDTV anyway?) and the world moves forward.
while the economic situation seems pretty bad for web companies at the moment, I don’t think it really compares with the “dot-bomb” era (to say “worst in our collective lifetimes”, for those of us in tech, seems sensationalist to me). Not yet, anyway. Stock looks cheap to me but I won’t be diving in just yet as the market is way too bearish right now. I still wish I had bought GOOG back at the start…
Public * Relations: we aren’t talking about NOW. we are talking about 6 months to two years from now.
SH*T Has hit the fan.
JOBS: gone.
Spending: Nill
Exports: Sinking
Internal revinue: A thing of the past
Debt: Doubling
Inflation: just waiting to runaway — unless things are so bad that there is deflation
What America needs is to follow countries like China. instead of bailing out the banks and the failing auto industry, invest in highspeed trains, clean power, clean energy.
China is investing 300 billion USD in high-speed trains (to augment their already very extensive railroad system) – They expect to create 100,000 jobs directly & 300,000 jobs in related industries, and they will will reap 570 % ROI in terms of dollars invested to GDP growth over 4 years. Holy Cow.
-American In China
I have an idea: maybe the fact that Citigroup is paying Captain Obvious hundreds of thousands of dollars per year to spit out gems like “almost surely the worst economic environment in our collective lifetimes,” is what’s wrong with the banking industry. Mahaney’s probably a smart guy, but pull in any idiot off the street, and they could probably give you the same worthless analysis.
your an idiot. lets sack talent all around the world and everything will fix itself ? go back to school, get a CFA and then maybe you’ll have an argument.
pffttt if mahaneys released a report full of financial figures, you wouldnt understand it would you noob. the reason he spits out “gems” is so noobs like you can understand shit.
“Mahaney’s probably a smart guy, but pull in any idiot off the street, and they could probably give you the same worthless analysis.” –> yeah this is going to fix the problem. remind me never to work for your company
I’m not saying that we should “sack talent”, I’m just saying that if more highly-educated, analytical geniuses went to work for the businesses that they study so intensely (while providing little to no real insight), maybe they could actually do something useful. Also, if banks didn’t pay guys like Mahaney (not to mention their executives) so much money to provide so little value, they wouldn’t need government bailouts.
Also, you spelled “you’re” wrong, and forgot to properly capitalize or punctuate everything you wrote. So, while I may be an idiot, you certainly don’t make a strong case for why you’re not an idiot.
Furthermore, where were all the CFAs when the global economy was driving itself off a cliff?
One more thing… worth mentioning, if anybody thinks that things are real bad for companies operating on the internet… speak to some of the offline businesses such as retail and all the other services based — yikes. People are starting to do everything themselves… GOOD
We internet marketers, web publishers, etc…have it good. Real good.
Best,
Mike
http://www.wannadevelop.com/
One interesting thing to watch with regards to online advertising is to see if search advertising conversion rates hold up.
One argument is that people will not be looking to buy as often and Google would see less product searches…but click-to-conversion rates would stay the same. In this scenario, Google would lose ad revenue proportional to the overall economic spending. However, I would assume that conversion rates are also going to fall as consumers’ willingness to buy falls. For example, a consumer searches for digital SLR camera, clicks on a sponsored ad, but the $800 price tag which was previously within budget is now not. No purchase happens and no conversion.
This would cause a secondary effect of advertisers realizing their search advertising efforts aren’t as effective as they once were. So then they reduce or eliminate their CPC bids, and Google suffers a multiplier effect on their initial loss in advertising revenue.
Andrew,
I agree, as a CPC advertiser, if we don’t get the conversions due to the economy, we must lower our ad spend. This would result in lower revenue for Google.
I wonder, as Google tries to grow in other areas how much they can make up for this. Being so innovative and flush with cash, this could be there moment to surge even further ahead.
Richard
http://www.jigantus.com
Google can’t be immune to what is going on – it might be one of the last to feel it – but it can’t avoid it.
We are cutting our ad budgets with Google and have stopped using Yahoo completely.
Not because we don’t believe in contextual search ads anymore, but simply because people are still clicking, but not buying.
For those that say you need to advertise during a downturn that still holds true, but only partially. As you can suspend and activate ads at will you can cut down now and then increase as and when you want. Basically, when customers click and then actually start buying again – then you get back in and use the money you have saved in the previous months.
But don’t take my word for it – I’m only in charge of an ad budget!
P
That’s what happens when you have 99% of your revenue from only one source…
I told you so.
LOL. you idiot.
I don’t understand
$125 to $175 sounds like a good price for Google.
i think google will be the less affected by the crisis, and the online industry also; we must seriosly think at two things: real (and imperfect) economy, and virtual (ideal) economy! cand we survive in the virtual reality? with virtual money, and virtual jobs?
The good news, of course, is that Henry Blodget is a dolt and almost always wrong on his calls. Not too long ago he was predicting Google was on its way to 2000 and backed it up with his brand of math.
Sorry Mike, but if it was 725 at its high and it’s 291 now, that looks more like 60% off of its high to me…
60% loss for GOOG – the stock looks cheap for that pool of brains they got in the Plex. It may fall further, but I’m a buyer at 291.
44% of 725 is 319. There is a 3 in 300 and a 1 and 9 in 291. Maybe Mike is slightly dsylexic. Hehe
Actually he said “44% off of its 52-week high of $725″. 44% off of 725 is actually 406. Yesterday’s price 291 is 60% off of 725.
Category 4 financial storm measured in billions of dollars.
$6+ Billion in bonuses for Goldman Sachs.
$6+ Billion in bonuses for Morgan Stanley.
$66 billion in bonuses are being set aside for the ‘engineers’ who perpetrated ‘the storm’ in the financial system and the real global economy.
These monstrously greedy people in dark, pin striped suits who have pillaged the capitalist system and ruined humanity’s political economy by turning it into a gambling casino and stealing its wealth for themselves and their minions are the same people who are now warning honorable people not to dismantle the global economy.
What is wrong with this picture?
Steven Earl Salmony
AWAREness Campaign on The Human Population,
established 2001
http://sustaina...?contentid=1176
The Analyst sees the market tank and covers his backside by issuing
a new report right on the heels of the earlier one. Smart !
Analysts reports are bunk, as was shown by Henry Blodget in the
dot-com bust, and people still listen to them ?
Quite a bit of senseless stuff being posted here – to be expected I suppose. The facts of the matter are this: GOOG is currently priced at $283 and change. They have a PE ratio of 17.88 – a PE ratio you usually associate with banks or less exciting investments. Let’s remind ourselves that Google doesn’t provide any sort of forecast on earnings, so aside from recognizing the hard numbers as they stand today, nobody knows what a fair price is for this stock – recession or not. Save that banter for the message boards.
Personally I’m seeing folks get more wise with their advertising buck. Revenue on my site has increased, as independent musicians in particular are looking to invest money in advertising that directly hits their target market (rather than using a platform like AdWords, where you don’t really know where the clicks are happening).
At any rate, wish I had some spare cash to invest in Google! I was in at $260, out at around $500. I’m pretty happy I got out when I did, all things considered.
Allen
http://www.madtownlounge.com
>> They have a PE ratio of 17.88 – a PE ratio you usually associate with banks or less exciting investments.
This is not true. Even in 07, before the subprime crisis, I recall Goldman’s PE ratio was around 10. And Goldman is supposedly a premier investment bank. Normal commercial banks have historically even lower PEs.
You are correct – I didn’t specifically say that bank stocks are typically between a PE of 10-15. My bad – I should have said their PE is “closer to that of a bank stock than a tech stock.” Tech stocks “typically” have PE’s of anywhere from 30 to 100+, depending on their niche and product of course. PE’s are subjective at best, but they are the only barometer we have when it comes to comparing apples to apples and oranges to oranges.
If a bright spot, friends with IP (internet) telecom say this is the best year they have ever had. Studies show that while consumers say that they will cut cable if money gets tight, they won’t cut internet. The migration of masses using the web as a form of entertainment versus just a utility or information platform happened in 2005 with the MySpace era so it’s likely that people will spend as much time if not more online as a form of entertainment. Entertainment business historically is said to have been relatively recession proof, though of course the economic climate this time around is worse. The last dot com bust was hard but it created a lot of opportunity and moved the web forward. I think this one will do the same. One thing I anticipate is a move to paid/premium content models, which has been much needed. Those who argue that the web “should be free” will see that much of it still will be – but watch for premium content, paywalls, etc. That’s how the web should’ve been built to begin with, but you have a lot of blind leading blind in big markets like media, etc. It’s going to be a tough road ahead but hopefully it’ll spart some real, intelligent thought to the internet as a platform and lead a collective effort to truly fix what’s broken – the ad business, the media business, etc.
Just my .2
It will be interesting to see if other players are able to take market share away from Google in advertising opportunities such as sites for e-commerce and other media companies. If a content heavy news site like cnn or nyt can monetize their online traffic and increase advertising revenue.
Google is a very good company and the best thing is that it has lots of cash.
Henry Blodget is an idiot, why would you even mention or link to him? He just looks at a trend and then picks a position on the same trend that’s more extreme than anyone else. When google is going up, it will go all the way up to 2000, when its going down, it will go down to 200…
He did the same crap when was an analyst. It’s a total joke… how has he gotten back his credibility?
It’s easy: you set up your own site, invite smart people to talk/write, get your name into as many ears as possible and that’s it!
Do you think Jim Cramer is genius? He’s an average stock picker (as proven by MSN), but he’s entertaining.
Mike:
Don’t you mean that the share prices is 56% off its 52-week high? It’s current price is 44% of the 52-week high.
–rj
Google is sneezing but everyone else is trying to keep its head off the hole… damn hole!
44% off of 52-week high of $725 is not $291, its like $100 more.