Is The Google Party Over?

"These stocks (Google, Apple, RIMM, Baidu) are so overvalued that I'd rather take a cyanide pill than put my money in these companies as long term investments." --November 2007

It appears the Google party is over as are the other apocalyptic stocks we have written of. Above is a chart of the company from its public offering. The last move upward looks like a classical blow off top. It has now broken its upward trendline for the first time. That doesn't necessarily portend a change in trend. Realistically, the stock is broken so significant rallies are not likely any time soon even though we are now in a support band. It is not a positive sign that Google has continued to weaken significantly as the market tried to rally over the past month. So, when the market rhythms turn south, be it temporary or otherwise, Google could easily punch right through this support.

The euphoria surrounding Google has been near mania this cycle. Of course, this is the cycle of manias. Emerging markets, China, Russia, private equity, oil, agriculture, Wall Street, metals, consumer stocks, derivatives, housing and on and on. I have written numerous posts about Google over the past three years. From the fact that the technology used is primitive comparative to where the market will likely head to competition beating them with new offerings to online marketing budgets being expendable in an economic downturn to the probability of the next great innovation in their business not coming from within the walls of Google to a valuation similar to the entire stock market of Thailand, one of the world's largest economies. Quite frankly, I'm not even convinced about the long term sustainability of their business model. I believe Google will have to transform itself to remain relevant long term. That is a very difficult undertaking not accomplished by many. Because, first it takes a realization that this may be so while business results are fantastic. Maybe Google realizes this and maybe they don't. I don't know. This is blasphemy to the Google pumpers but as I wrote not too long ago, Yahoo is one of the worst managed technology companies out there. Eight years ago they were considered invincible.

On the other hand, Google may continue to dominate its space for years to come. But that is irrelevant. Intel still dominates its space yet eight years after its bubble burst, the stock is still down 75%. We are going to find out how much Google is really worth. And, I wouldn't be surprised to see that number be 75% less than at its peak similar to Intel.

By the way, Microsoft, you should walk from this $40+ billion Yahoo offer. You would likely be top ticking the paid search and online ad pricing cycle at a price that is astronomically ridiculous. If you can afford this type of loose expenditure, cut shareholders another one time dividend. Otherwise, you might consider making more surgical acquisitions to fill in your business strategy or functionality gaps and spend some of the savings redeveloping your online presence. Because Yahoo's brand is not worth $40 billion. Yahoo's stock was $4 just a few years ago and it is likely headed near that price again. Patience will be rewarded. And, if someone else can raise that kind of capital to buy Yahoo, then so be it. Let them deal with the albatross of $40 billion in debt to acquire Yahoo. Frankly, I don't believe anyone can raise this kind of money for Yahoo in the private equity space. If they do, they'll likely burden Yahoo with enough debt to bankrupt them. And, who else is going to buy them other than you? Walk away. Re-offer if Yahoo is still available in the future. They might be begging you to take over the company at some significantly lower price.