Google stock price fell nearly 8.5% today and was traded 7 times average daily volume.
1) Google's market share dropped about $15 billion in value.
2) Todays drop was investors reaction partly due to Larry Page's very short appearance in the earnings conference call. He did not stay to answer potential questions (from wall street analysts and mutual fund investors) on company's future strategy and partly due to increased operational expenses.
a) Google has hired nearly 2000 employees in the first quarter and plans to add another 4000 by the enod of this year (2011).
b) Google increased salary compensation by 10% across the board.
c) Google acquired a new building in New York. (Well this is a real cost which cannot convert into value except appreciation)
The above 2 costs (a) and (b) are key factors that worried the investors. But does an increase of nearly $1 billion in operation expenses justify the erosion of $15 Billion in market value in one trading day?
The above 2 costs (a) and (b) have already been factored in to the stock price in the earlier part of the quarter when they were (PR) announced.
So why a drop of $48 in the stock price today? To me it seems like the investors and the smart money managers did not like Larry Page's 349 word act in the earnings conference and hence they dumped their GOOG holdings.
Larry stated: Unlike Eric Schmidt he is not a wall street focussed CEO; he is a technologist, a product manager to the core. He is what he was when the company began. He is not working for short term investors
who are looking for quick profits. To this fact he had also mentioned that the operation expenses would give a beating to the stock. Larry, to the contrary, is focussed on making the company nimble, restructure the management and put the company on the growth track. Google is a huge company and like every other it needs to continuously foster innovation into its existing products and derive and build new ones. To that extent
it really takes highly skilled talent which takes money to retain and the talent not being lost to the likes of Facebook/Groupon/Twitter/Zynga (the so-called latest hot start-ups in the silicon valley).
Another point I'd like to highlight is that Patrick Pichette, Google's CFO, pointed out that the cost investment in the past paid out this time and which is why Google is doing the act. Considering this claim, we are yet to see the revenue generation due to the current quarters expenses which are to follow in the subsequent quarters.
Google does search best. It is the leader in the search market with nearly 65% market share (the others being Microsoft's Bing and Yahoo and the rest). As more an more people come online and start using Google, for e.g. Android devices (350K are being activated each day across the world which is a stunning growth) would
increase Google's ad revenue from the existing Google's popular products like Search, Youtube, Android (mobile OS and applications).
What Google is investing in which could foster growth like Youtube, Android, Chrome?
Driverless car, Solar, Wind farm, Google TV (TV ads is a $60 billion industry). Imagine google getting a significant piece of that. Consider the increasing number of online users each day.
Google is an innovation-in-the-works company. It has about $36 billion in cash and is confident that it can
generate value with it instead of returning it back to the shareholder. Its not like an oil company where a company ceases to grow at some point in time due to demand/supply dynamics but we have to ask ourselves
have we reached that tipping point in technology sector.
Google is a workhorse behind a lot of new products and technologies in the Information Technology sector
and there is plenty of growth left in it until we have all the people in the world come online and start searching for information. Until then I see upwards for more cash flow just like in the last couple years.
Hence I think the todays dip creates a big buy opportunity. With the remaining investment money that you
would have load Goog with 1% of money per day on every dip. It will come out like a soaring green star!
