Google shares plummet past $300, reach three year low
Wall Street ignorant of Mountain View money machine
Google's share price has dipped below $300 for the first time in three years, after some Wall Street guessmen decided the ad broker's revenues are on the wane.
After a high of $747.24 on November seventh of last year, the company's stock closed at $291 in Nasdaq trading yesterday, and today, it dropped another two per cent to $284.99.
Yesterday's fall was sparked by doom-and-gloom "research notes" from three Wall Street types claiming to know the future. "Search marketers almost universally expect Q4 to be the weakest they have ever experienced,” said Citigroup's Mark Mahaney, who chopped his fourth-quarter earnings-per-share guesswork to $5.03 from $5.17.
Meanwhile, Collins Stewart’s Sandeep Aggarwal dropped his all-of-2008 EPS estimates to $19.50 from $19.60, and Stanford Group’s Clayton Moran now puts his as low as $19.38.
All three analysts also cut their Google predictions for 2009. And their reports came hot on the heels of similarly dismal predictions from Barclays and Goldman Sachs.
Clearly, these analysts don't realize how easily Google can crank the dial on its top secret money machine. In the third quarter, as rivals like Yahoo! buckled under the crumbling economy, Sergey Brin and crew saw profits leap 31 per cent after tweaking their AdWords platform to allow more ads onto search results pages.
More ad coverage means more clicks, and more clicks mean more revenue.
Before the third quarter, Google had spent several months decreasing ad coverage in an effort to improve what it calls ad "quality." But now that the economic landscape has changed, the Oompah Loompahs have turned the dial the other way.
Yes, Google is still dependent on advertisers forking cash into their AdWords accounts. But advertisers are far more likely to abandon display ads before pay-per-click search ads - which make it much easier to at least imagine a return - and Google has monopolized the search market.
If any online ad biz can weather The Meltdown, it's Google - simply because it's the last place advertisers would turn away from. Or as Google chief executive Eric Schmidt put it: "We believe that [Google's Q3 results] reflect the fact as marketing budgets are squeezed, targeted ads are becoming more valuable to advertisers... And as consumer budgets are squeezed, people use the web for comparison shopping to hunt for bargains online and in stores."
When Google reports a healthy fourth quarter, we won't be surprised at all. ®