So says Kevin at GigaOm:
Demand for Google remained high in 2005 as the company blew away earnings in the third quarter ($1.51 a share vs. the Street’s estimate of $1.36) and Net stocks in general rallied toward the end of the year. But think about this: Google ended the first week of 2006 at $465.66. If you bought it 15 months ago, you haven’t made money.
The supply caught up with demand. If anyone was hot on Google, thinking it might fulfill the orgiastic fantasies of analysts who had a $2,000 price target on the stock, there was always someone more than happy to sell shares to them.
Google’s margins are compressing, revenue is decelerating, and free cash flow is stagnant (at least through last quarter). Hard for a stock to go up with those fundamentals, especially starting at 70x free-cash-flow.
The problem with google is it had 99% growth in the 3rd quarter. 99% growth, while wonderful in it’s own regard, is bad when the 4th quarter rolls around and it is not showing more growth. You can’t really do better than 99% growth. I believe (I don’t have my numbers in front of my) that Google tripled earnings in the 4th quarter, but growth was around 60 or 70%?
Unfortunetly for Google, the market wants continuing rising growth Since you can’t really grow better than 99%, it is falling growth or receding growth. So the stock price fell upon the announcement of the 4th quarter earnings…
Then when the Market Crash came late February, that threw a bunch of stocks prices into the toilet. The Dow lost all of the revenue it gained in 2007 on that one day. So the problems facing Google mentioned in the above article aren’t really all that uncommon to a lot of stocks right now. Nor are they anything to be worried about.
Hard for a stock to go up with those fundamentals, especially starting at 70x free-cash-flow.
Cash Flow = turkish songer