Google's Moment of Truth: Stock Hits $350
Google's stock collapse will likely have several impacts on the company. All will likely become more pronounced the longer the stock stays at these levels (or, god forbid, falls further):
Angry shareholders will increasingly pressure management to be more forthcoming about how they are spending Google's astronomical CAPEX and R&D budgets. Even in the salad days, Wall Street was annoyed about how little Google disclosed about what it was spending so much money on. Now that the bloom has fallen off the rose, this impatience will turn to anger. At that point, management will have a choice to make: Continue to say Google is just "not a conventional company" or cave and start providing better disclosure.
Angry shareholders will increasingly campaign for more accountability on those CAPEX and R&D investments. Specifically, Google's culture of 20% time, pet projects, and endless revenue-less beta releases will become more and more annoying. Management will then have to decide whether they want to respond to this call for more discipline or, again, maintain that Google is "different." If they choose the latter route, many shareholders will likely throw in the towel.
Google may have to fire people and/or otherwise tighten the belt. Yes, it sounds inconceivable now, but Google's margins have been dropping steadily for more than a year. With the global economy headed into recession, it is highly likely that Google's revenue growth will be hit. This probably won't put the company in actually difficulty, but it will certainly prompt shareholders to call for change.
A likely shift toward more cash compensation as a percentage of total compensation, which will put more pressure on margins. The gulf between the "haves" and "have nots" in Google's 16,000+ ranks will now have become even more stark than ever, with the folks hired more than three years ago rolling in wealth and everyone else feeling like they missed the boat. This will exacerbate morale issues. If the stock doesn't recover, it will also likely force the company to consider raising its cash compensation as a percentage of total comp, to placate those who missed the pre-IPO bonanza.
The Google talent exodus will continue. The fun part, it seems, is over. So why not let someone else worry about the hard and painful part while you try something new?
Perhaps most importantly, the perception that Google can do no wrong will change rapidly. As it does, the pent-up anger about Google complete domination of the global advertising market over the past few years will find a more receptive audience, and the company's critics will be emboldened.
Will all this kill Google? Of course not. But it will likely force some change. And as far as the company's outside investors are concerned, that's probably a good thing.
See Also:
Google Breaks $400...And Still Not Cheap
Google Below $350? Easy
If you're a stockholder you should have cashed out at 700+, if not, your greed got the better of you. Lesson learned. Nothing beats cash in the bank (hmm, let me think about that in our current situation). The Google will recover (I doubtful to those levels), but $350 could be a steal for a company I think we all know probably has a few more tricks up their sleeve.
All this talk of what the shareholders want is quaint, but nonsense. Also, see yahoo for what happens when the shareholders supposedly have a say anyway.
The whole notion that shareholders have a say (other than by selling shares) simply isn't true for some of these tech companies.
I think you will see inflated stock values dissapear fast when the situation is bad as this.
The first legitmate great move (apart from their Ads) was the mobile OS. Its a bitch to make it work - albeit in alpha ,but the timing for its launch appears to be a bad one.
I get the sense that Google is all about Sergey and Larry. These guys already made their billions and have no incentive to move the stock SHORT TERM. Regretfully if you are a short/near term investor you're IMO fishing in the wrong pond.
@A_F
- People these days are selling anything just to cash in. If we can have an article about a company whose shares are falling, well, we can really talk about ANY company.
- Google is a fundamentally very sound company. Its margins are huge and, instead of focusing on its core business to maximise profit while they can, at Google they keep experimenting with stuff to be sure that when some other big business is born, they're not left out. Microsoft, AOL, Yahoo anyone?
- The 'talent is flying away' statement seems to be based on a nostalgic view of older cohorts of programmers and developers as intrinsically better than the new ones. Talent comes, talent goes. The real challenge is in allowing the business to remain open to talent. What often happens, instead, is that the free-flowing shape of formerly creative business solidifies into an organisation that cannot cope with new challenges. Microsoft, AOL, Yahoo anyone?
It's tough, but at Google they're trying to do that.
And no, I don't work for Google. In fact, I work for one of their competitors.
Yes revenue growth will slow and could even be negative in the deep shit storm of an economy we will endure next year.
Analysts are cutting estimates to "just 37% revenue growth" in 2009. Think we need a little more of a reality bite before it is time to dive back in.
Zero percent revenue growth in 2009 would be a good starting point. How is that for a bold forecast? It isn't even bold but no sell side analyst yet has the balls to go there.
Whadda ya think Mr. Amazon $400?
You loose talent as your stocks are not lucrative, you have to answer many questions when global demand is in a question or even otherwise, your get 5 times the cynicism.
This is the pain that size brings.
Goog will announce results in 2 weeks. When they miss, will the market act surprised and punish their stock with a 50 point drop? Or has the market already priced this into the stock given its huge drop over the last 3 weeks?
(tongue in cheeck)
No comment on valuations. Everyone can play monday-morning-QB.
Ask yourself:
Do you want diversity or focus from a company in which you invest? Is search, and all that it entails, just one business? When you are in the data business, isn't acquiring all the data you can valuable? Can the data required to be effective at search be monetized in many different ways?
Not surprised you don't put a last name with kind of technical incompetence displayed in your comment. Pure idiocy on a technical front.
1) Android is software. It cannot be, "ugly, bulky..." If you are referring to the G1 from t-mobile, well there will be many more phones running android. Not to mention the refrigerators, set-top boxes, and wifi devices, and w/e else needs a simple kernel.
2) Sounds like you just wanted to rant about "geeks" and "virgins". Sexual frustration, perhaps? DO you really buy phones because of the statement it makes? I suspect you purchase Apple products then? Oh, I see...
Google employees will begin to flee the ship --- the moment is now.
Btw, note that even if Google goes completely flat in terms of growth, it's still at around $19/share yearly profit. Which already puts it below a 20 P/E ratio. Looks cheap to me, given that I don't think it has a zero growth rate.
One of the reasons for the current crisis is the short-sighted attitude of investors, that value firings and discriminate against long-term investment, and you think Google should answer by surrendering to the same expectations that got other companies in trouble?
20% time and long time revenueless beta releases are exactly what eventually granted Google billions of revenues. Can you give us just one reason why Google should give up on that to please irrational investors?
Falling for this kind of perverted logic would pose the greatest threat to Google's success.
http://www.techcrunch.com/2007/10/02/google-to-2000share-somebody-muzzle-blodget/