Getting to the bottom of Google
Google (GOOG) triples fourth quarter profits -- and its stock tumbles $20, or about 4%. Why? MarketWatch says:
The company's gross profit margin also fell slightly, however, as Google increased investment in new businesses. Also, Google reported that the amount it pays affiliates and partners rose during its fourth-quarter, and will continue to do so in the future. Margin and cost concerns contributed to a premarket decline in Google shares. The dour investor sentiment spilled over to Thursday's opening moments, when Google shares fell 2.8%.Seems plausible, right? We could speculate all day. (Here's theStreet.com's take.) But Fortune's own editor, Andy Serwer, has a simpler explanation:
Luv the buy on the rumor sell on the news on Google. Dang stock up $7 to $501. Then earnings come out...nearly triple! And the stock's off $9 in the aftermarket. Newsflash: It's not over. [It's down $20 as of 11 a.m.]Seems to be a pattern lately. It's always good to remember that the market isn't a thinking individual, with reasons for what it does, but just a place where people speculate for a living. Andy's right that it's hard to read much into what it does on a given day.
[UPDATE: Alex in New York comments: "Is this morning's selling institutional or individual?" That's a good question. Is one person dumping out, or are just lots of big traders -- like mutual funds, pensions, or hedgies -- realizing their gains? It's hard to answer that question on the day of trading if you're not on the floor. Hopefully someone's recap tomorrow might have that answer. Otherwise, check your Bloomberg terminal or Yahoo Finance next week to see if they posted any big movements in major shareholders. There's generally a lag to posting stuff like that.
Also of interest: Google was actually upgraded today by eight analysts. Unlike Apple, which was downgraded by some analysts, including J.P. Morgan (which said "our view on Mac share gains has proven to be too optimistic") on the day it announced a great first quarter. This further points to an un-meaningful drop in GOOG's shares today.]
Is this morning's selling institutional or individual--who's getting out?
GOOG was also as high as $520 in pre-market trading (around 9am EST) this morning. So, I think the key takeaway is that this is, and will continue to be, a highly volatile stock that investors still have a difficult time valuing.
4% movement before earnings is nothing; if google was a $5 stock this movement would translate to less than a quarter!
The mean analysts' price target for GOOG is 557.10 with a high target of 650.00. The question is not how high, but when, will GOOG realize expectations.
This was a very big volume down day for GOOG which would indicate institutional distribution. GOOG has been known to whipsaw in the past so the jury is definitely out as to whether a downtrend has been established.
what to do with this irrationality, if it is? beat it really hard with call options, maybe.
What you saw today was a bunch of people who are thinking short-term, didn't get the 'pop' they wanted after the announcement yesterday, and sold fast. The strength of the company's financials, combined with their long-term development outlook, will lead Google to continue outperforming the market. If this stock is not up 10% in the next 3 months--and I say that conservatively--I would be shocked.
The institution buyers as reported on http://thomson.finance.lycos.com were signaling their wishes to buy Google all day long as it dropped in price. This stock has been very volative when expressed over a 4-6 day time cycle. Now is the time to buy and take profits the next time it hits 510. I'm guessing that will be within 10 days from now.
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