The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

11 July 2007

Google's continuum

Does it ever seem to you - it does me - that the Wall of Worry can often be a tiresome climb? I know that as Google/GOOG climbs ever higher in price, news stories of this type proliferate...
reports that Nielsen/NetRatings has changed the way it rates Web sites and in the process has upended the rankings of the top online destinations, vaulting AOL (TWX) and Yahoo (YHOO) over rival Google (GOOG). The research service announced yesterday it would measure popularity by how long users linger on sites, not by how many pages they view, a move that could affect how online advertising works. Making the biggest leap, AOL moved to the No. 1 U.S. site, logging 25 bln minutes, according to Nielsen's May data. If ranked by Web page views, AOL would be No. 6. GOOG dropped to fifth from third by page view ranking by minutes of use, at about 7 billion minutes. Jennifer Simpson, a senior analyst for Yankee Group, said the new rankings may prompt advertisers to change they way they present and place ads. It could also hurt search engines like GOOG that generally serve as pit stops for users looking for something else.

Which causes some bulls to worry. Peter Kafka, writing on Henry Blodgett's website, however, showers disrespect on this news, and I agree. Note that Google/GOOG's march to higher highs continues...

[click on chart to enlarge]

Despite the arguments and wails and whines of the many investors not long the shares, Google/GOOG's move to higher prices is resolute. The trend line delineates Google/GOOG's trend, yes, but also its trajectory and its continuum. Please recall that I last recommended purchase ~$100/share lower than its current price based on its then-proximity to that trend line; I argued then that it represented value on a fundamental and valuation basis, but also on the chart. Which means that purchases made on that upward trending line (here comes a secret, sshh!) are safe, as even should the stock breach the line and begin a correction or, shudder, a bear market, there will come a test of former support (the upward rising trend line) which assures a profitable exit before lower prices set in. So why the need to worry?

Next up, is Google's Q2 2007 earnings report due Thursday the 19th...

Google/GOOG announced that it will hold its quarterly conference call to discuss second quarter 2007 financial results on Thursday, July 19, 2007 at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time). The live webcast of Google's earnings conference call can be accessed at The webcast version of the conference call will be available through the same link following the conference call. reports that the brokerage firm of Thomas Weisel previews GOOG Q2 earnings (set for 7/19), saying GOOG continues to take search market share and extend its lead in monetization innovations and improvements in 2Q. Given the stock has performed well in 2Q07, up 14% compared with the S&P that was up 6% during the same time period, firm believes investors are beginning to look at emerging categories of revenue growth including mobile, display and video. Firm expects $2.69 bln in 2Q07 net rev (up 6.0% q/q and up 61.1% y/y) compared with First Call, which is expecting $2.67 bln (up 5.3% q/q and up 59.9% y/y). The firm expects currency could add nearly $123 mln in gross revs in 2Q and provide 7.2% lift to Google's international operations on a y/y basis. Despite these industry-leading expectations (they expect Yahoo!'s (YHOO) net search rev should be up 5.2% y/y), they believe investors continue to look toward new avenues of growth at GOOG. Firm likes YouTube's upside potential in terms of rev, suggesting that should GOOG begin to advertise in-stream, the co could reasonably start to see $500 mln a quarter in ad rev.


Oppenheimer notes GOOG reports on Thursday, July 19, after market close. Thefirm is estimating net rev of $2.69 bln, EBITDA of $1.69 bln and pro forma EPSof $3.63 vs. Street at $2.67 bln, $1.66 bln and $3.58 in rev, EBITDA and proforma EPS, respectively. Firm's net rev est for June quarter implies Q/Qgrowth of 6% vs. Street at 5%. Firm thinks GOOG's ability to come outunscathed post MSFT's launch of Vista and YHOO's launch of Panama muted therisk perception of the likelihood of Google losing market share in search, contributing to the upsurge of stock price in the last three months. Firm'sabove-Street 07 est reflects positive view to generate rev from Videoadvertising, to continue to improve search monetization, and to gain marketshare in search queries.

Full Disclosure: Long the shares of Google/GOOG.
-- David M Gordon / The Deipnosophist

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