Forget what everybody else is telling you and sell your shares in Google right now at $416.
- Dec 15, 2005
- admin
- Entrepreneur, Investing
EVERYBODY MUST GET STONED
At least that’s what Bob Dylan believed when he sang those famous
words back in the “Go-Go 60’s.”
And while I’m not sure whether “everybody” should get stoned I am
sure that the words I write today might get me stoned.
The “stoning” I’m about to face will come in the form of mountains
of hate mail I’ll recieve within minutes after sending today’s
article out to you.
The reason?
IT’S TIME TO SELL YOUR STOCK IN GOOGLE.
In fact, I think it might be time to SHORT shares in Google but I didn’t
want to knock you off your chair before you had your second cup of
coffee this morning.
But the stock, which is trading now in the $416 range, is at the end
of the first phase of its public life cycle.
Now that doesnt mean that I dont love Google. Heck, I do business with
Google in several areas.
What it means simply is that the DISCONNECT between PRICE and WORTH
are bigger then at any time in the company’s short history.
For those of you in our audience who are hesitant to sell or short
the Internet’s version of “KING KONG” I have one thing to say to
you:
“SHAME ON YOU.”
You’re the same know-it-all easy-money shmuck was stunned
in 2001 when you realized how crazy the Internet craze really was.
“It’ll never, ever, ever happen again,” is what people like you swore to
people like me at cocktail parties.
Of course when you were reminded that bubbles have, in fact, occured
througout history with some frequency you dismissed folks like
me as “out of touch.
I guess losing 90% of your money in the tech crash was only good enough
to give you 4 years of investing “sobriety.”
I should probably be thankful that huuman nature doesn’t change (which
is why sharpshooters like me will always be there to pop investing
bubbles created by silly rabbits like you).
Now back to my point on Google.
Every single company throughout history has four phases to its life
cycle:
Phase 1: START-UP
Phase 2: GROWTH
Phase 3: MATURITY
Phase 4: DECLINE
In Google’s START-UP PHASE you had Sergey and Larry using all of their
brainpower to create beautiful, intuitive software that would make
everybody elses search look old and clunky.
After creating a great product they raised money from other equally
brilliant people who recognized “game” when they saw it and bet
on the right horses.
Fully funded, Google hit the “GROWTH PHASE” of its business plan and
went all out trying to change how advertising is bought and sold.
Now for those of us who have short-term memory, what Google really did
here was STEAL Overture’s advertising bidding system and, using it’s
advanced searching technology, made it better.
Thus, advertisers like me were able to better target their ads to
stronger search results.
Believe me I use the word “steal” with the utmost respect. This is
business, not the playground.
Idea’s about business are as lame as the people we all know who have
millions of great ones.
When you get to the big leagues its all about execution. And the people
backing these horses knew enough about execution to bring aboard
people like Eric Schmidt to execute the heck out of this busines plan.
Furthemore, Google WAS AND STILL IS BRILLIANT to hire only PhD level
thinkers to run the business. It’s not that I think academics or
intelleectuals are the answer.
Quite the contrary.
But when you mix STREET SMART THINKERS with REAL WORLD EXPERIENCE you have
a DEVASTATINGLY POTENT COMBINATION!
The eggheads in charge of Google insured that growth would be torrid
enough to make last years IPO one of the biggest in recent memory.
GOOD FOR THEM – THEY DESERVE EVERY OUNCE OF SUCCESS.
They did it better then Yahoo/Overture, AOL, Ask Jeeves, MSN and everybody
else in the space.
In fact it’s fair to say they caught all of their competitors ASLEEP AT THE
WHEEL.
But the Internet Big 3 (Microsoft, Time Warner and Yahoo) aren’t
sleeping anymore.
In fact, they’ve all turned their battleship guns RIGHT IN THE DIRECTION of
Google and have their fingers on the RED BUTTON.
Why? Because they see how much money Google is making.
And one of the MAIN LAWS of business is that when people see you making
gobs of cash they want to take it from you.
That’s right.
The Internet Big 3 have seen the writing on the Wall and now want to
eat Google for breakfast.
Microsoft has hundreds of eggheads working to make its search technology
great (I know one of them personally and he is ONE SMART COOKIE).
AOL is now shifting to an INternet based advertising model as its EGGHEADS
rush to move its customers away from its dinosaur dial-up days.
And Yahoo – perhaps the one caught sleeping the most here – has its EGGHEADS
moving at light speed to do the same.
What happens now? Let me lay it out for you:
When everybody starts to move in on your competitive turf that
increases competition.
When competition increases prices drop.
Think about it…
All these cats are in the business of selling advertising space.
Now if you’re an advertiser and suddenly you have 4 or 5 firms like
Google and Yahoo knocking down your door to get you to spend money with them
you’ll soon realize that you can play each firm against the other.
Mark my words this will be the new lingo running around FORTUNE 500
advertising firms:
“AOL is offering me a branded deal across all of their networks for $$. If you
can beat that we’ll talk.”
When competition comes into an area that usually means that a company
is headed toward PHASE 3 of its LIFE CYCLE – MATURITY.
Now I’m not saying that Google’s growth is finished.
What I am saying is that competition is about to take a slice out
of both their top line and their bottom line growth.
That’s why I would sell shares of Google right now (for more in-depth
valuation work read “Is Google Worth It” on our archived FAS Section).
Now, onto why I would SHORT shares of GOOGLE.
AOL is about to cut a big partnership deal with either GOOGLE, MICROSOFT
or YAHOO.
And right now Google sells advertising across the AOL network.
But if Microsoft decides to pony up $1 BILLION in cash just to seal the
AOL deal (remember Microsoft has other competitive reasons to slow
down Google’s cash machine) Google is going to LOSE A BIG PORTION
OF ITS REVENUE….
Most importantly, it will lose a chunk of it’s cache’ as many business
people I talk to use Google primarily because they sell advertising for
AOL and they want to reach that audience.
Bottom Line:
1. Google is a great company and will likely be around for a long time.
2. Google initially caught the BIG 3 flatfooted and leveraged that to
the hilt with explosive growth.
3. Google now has real competition for the very first time and will
likely see growth and profits growth slow. THis is reason to sell
the stock if you own it.
4. Google MAY lose deals like with AOL which will hurt it much
worse then the company will admit. If this happens it’s reason
to short it.
Well folks its time for me to depart (I have to place some advertising
on Google before Noon).
LET THE STONING BEGIN!!!!
–By Dylan Jovine