Analysts put Google in the 'penalty box'

The stock plunged the day after the company's earnings miss, and history says shares won't bounce back right away.

By The Fiscal Times Jan 23, 2012 11:20AM
GoogleBy Suzanne McGee, The Fiscal Times

Google's (GOOG) share price nosedived Friday after the search giant announced disappointing fourth-quarter profit and revenue late Thursday. Analysts had projected EPS of $10.50 a share, and Google came in at $9.50. Ouch.

But the 8% plunge in the stock's price -- an immediate and understandable response on the part of investors who have come to count on Google to deliver growth in a world in which that is becoming increasingly scarce -- may not be an end to the matter.

For one thing, there are the long-term questions about the kind of growth that Google can continue to generate. Europe is battling its own economic woes, and that hurt Google's international growth.

Then there's the fact that new kinds of advertising -- like ads put on mobile phones -- are less lucrative for Google than traditional online ads. Operating expenses are climbing as Google pushes to compete with social-networking giants (with the buzzed-about Google Plus) and online video (thanks to the YouTube site). Canaccord Genuity analyst Michael Graham responded to the news by trimming his price target and earnings estimates for the company for 2012 and 2013.

But even if you share the long-term optimism of analysts who remain upbeat about Google, such as Ken Sena of Evercore Partners, who praised the company's strategic focus, there's a more immediate concern. "Google will likely be in the penalty box for at least a quarter," Canaccord's Graham warns.

For Kevin Pleines of Birinyi & Co., the worry is even more immediate. Google, known for consistently beating analysts' estimates, is taken out to the woodshed whenever it disappoints. And that reaction, Pleines warns, isn't confined to the immediate reaction of the kind seen Friday. Since Google's IPO in 2005, Pleines note that when the market beats up Google following a disappointing earnings result, the stock goes on to fall another 8.3%, on average, before hitting a low an average of 33 days later.

Of course, history isn't destiny. But it does offer a guide, and in the absence of any bullish or upbeat news affecting Google, this may be one more reason to avoid snapping up the stock as a "bargain" after Friday's sell-off and wait and see until, oh, say, Feb. 22. Even then, Pleines cautions, it takes an average of 78 days for Google stock to recover to the levels at which it was trading prior to the disappointing earnings report. The stock may still be a long-term buy, as many analysts insist, but it might be worth pondering that technical history when you're deciding when and at what price to actually buy.

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2Comments
Jan 23, 2012 5:10PM
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While Google has invented one matrix to support a way of advertising on a search engine to extract money by a search advantage, by a couple of different ways examples 1- A position bid and 2- pay for click scheme 3- Map and places position placement just to name a few. Google has also  pitted local and national competitor's against each in an uneven fight  depending on budget (who has the deeper pocket and float)and all in the name of advertising. Why are Google client's tired of chasing their tail's....? Google's BIG flaw is it's matrix's itself and the business model is non productive only to a few thousand (top 8%), the rest are all lost and pay google and others SEO companies for empty promises.......ad sense and first page stardom.

The reality is PAY FOR CLICK IS A  RIP OFF AND A BUST AND THE CONSUMERS ARE JUST NOW STARTING TO REALIZE IT.  While they point out the contrary in their statistics...THAT IS ONLY HALF THE STORY...! What they do not tell you is that CLICK DO NOT TRANSLATED TO PHONE CALLS and ACTUAL SALES IN THE SAME PROPORTION and THERE IS NO LEAD GENERATED so it is all vapor.....HIt or miss. Their model fits better manufacturers and or (creators) rather than Resellers or Distributors that have to resort selling into low margins in this efficient global economy. As more and more advertising clients are realizing this they are cutting back entirely or substantially lowering the advertising budget to just a couple of hundred dollars a month. So the fact that google held up this long is amazing......BUT LOOK FOR THE BIG BIG DROP VERY SOON...! SELL IT IF YOU CAN...TAKE YOUR PROFIT NOW BEFORE IT IS TOO LATE...!!!!

Jan 23, 2012 2:58PM
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Google is primed for a huge fall. They are trying to get their fingers into everything and are becoming competitors with their customers which is going to lead to their customers dropping Google. Even those customers not directly competing with Google would be wise to have a business plan in place to drop Google because it is only a matter of time.
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