Wednesday, November 12, 2008

Google Takes a Nosedive

A high-flying stock for most of last year, Google shares have made a dramatic reversal as the gravity of the economic crisis hits the "real economy." Citigroup analyst Mark Mahaney joined the herd today and lowered his expectations for earnings growth, citing what isn't a surprise to anyone by now, that the economy is in the tank. Year to data, Google has shaved off a staggering 58% compared to the S&P's 42% drop.

It might be surprising to some to see Google getting hammered by the effects of the credit crunch and associated fallout, given that they're in the advertising business. While their customer base is diverse and increasingly international in composition, some of the biggest spenders in search advertising were financial services firms and automakers, two sectors experiencing unprecedented periods of creative destruciton.

Wall Street, however, is notoriously short sighted (I think the securitization debacle validates this) and over a hundred billion dollars of Google's value has been wiped away in the last year. Given the company's strong earnings growth, low valuation multiples, and strong position as the provider of the future web operating system, you might be able to pick up some dollars for half off.