Gloomy Over Google

Stock prices are roughly at the same level they were at the start of the year....a result that Google shareholders would take in a heartbeat. It's more than a little puzzling why GOOG is down 18% in the absence of new information. We can tick off concerns that have been known for months, if not years: 1) Change at the top, i.e. Larry Page becoming CEO after years of steady guidance by Eric Schmidt; 2) A spotty record of monetizing popular products (gmail, YouTube, Android); 3) Allocating resources to fanciful projects (e.g., driverless cars, alternative energy) that are far removed from its core businesses.

It's possible that investors are fearing a major impact from Oracle's lawsuit over its Java property, or that a weakening economy will produce a drastic decline in Google's ad revenues. Another factor is that Wall Street is down on the entire tech sector, which is being assigned lower growth expectations and multiples than venerable non-tech companies. Google, with its 19x price-earnings ratio, is particularly vulnerable to a correction: for example, if the street believed GOOG merited a 15 multiple, the price would drop about another $100 from Friday's close of $485.02.

Graphic from the Mercury News

I still think that Google's products have world-changing potential, but one sad lesson I've learned over the years is not to fight the tape. I dumped my holding when the price was above $500 and will wait for better times to get back in.

[6/18 update on the Oracle lawsuit:

Calling it "breathtaking" and "out of proportion to any meaningful measure," Google (GOOG) attorneys revealed late Friday that an expert working for Oracle (ORCL) has estimated Google may owe $1.4 billion to $6.1 billion in damages in a patent dispute over the popular Android mobile operating system.

For perspective, Google's net income for the year ended 12/31/10 was $8.5 billion.]