Has Google lost it?
by Peter Switzer
Is Google losing its way or could this be a sign that the US reporting season is going to disappoint over the next few weeks? And if the latter is the case, could this trigger the pullback in stocks that many experts have been expecting?
Today Google had a hiccup with its company earnings report when it came out early! Worse still, the actual report was not a good one and the stock lost over eight per cent or around US$60.49 to US$695.
And this was on a day when Wall Street was hardly down at all, though the Nasdaq did lose just over one per cent.
In fact, tech hasn’t done well this reporting season with IBM doing OK on earnings but down on revenue. Some analysts point to the rising US dollar, which is hurting many of America’s best companies that operate in many countries.
The dollar issue wouldn’t have helped Google, but it also has other issues.
In a nutshell, cost per click for Google has fallen for four quarters in a row and the tech heads blame the spectacular growth of mobile. This was also identified as a key reason why Facebook has been belted on Wall Street this year.
Nowadays the amount of searches on mobile is rocketing but advertisers won’t pay as much for ads on a telephone or tablet screen arguably because they are less effective. The relative standoff of advertisers about mobile might not last forever, but it’s an issue now.
The company has other problems with Google Maps, its Android play and its investment in Motorola, however, its revenue issue, could be more an economic thing, as other tech companies have had similar challenges.
So far, so pretty good
So far about 20 per cent of the S&P 500 group of companies have reported and Thomson Reuters says 65 per cent have beaten profit expectations but only 42 per cent have slam dunked revenue forecasts.
The average, based on history of the S&P 500, is 63 per cent but given the economic weakness of the quarter in question, it’s still a pretty good result.
I think Google has internal problems that won’t be permanent — this is a company that has shown an ability to adapt and understand the changing tech world. It also faces external issues that will dog some of America’s best companies that trade worldwide and a lot of this is linked to a stronger US dollar.
US economy returning
The US economy is coming back — yesterday’s 15 per cent spike in housing starts — the best in four years — is a strong sign that the US housing sector is on the mend and this is critical to giving the US economy a strong foundation for a sustainable, job-creating recovery.
Also, leading indicators spurted higher to register the best gain in seven months!
There’s still some ordinary news in the USA on the economic front but the green shoots are growing bigger and it’s making me more confident about stocks going forward, despite a pullback still a possibility.
This positive economic view will show up more in the next quarter’s earnings and should underpin another leg up for stocks in the new year.
On Google, it looks a little lost but it will find its way back, just like the US economy has.
One minute with Peter
Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
Published on: Friday, October 19, 2012
The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.