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Saturday, April 19, 2008

GOOGLE GREAT EARNINGS REPORT AND A CHEAP STOCK TO BUY FOR THE LONG TERM PLAY !


GREAT GOOGLY MOOGLY! WOW, THAT WAS QUITE A PERFORMANCE Google (ticker: GOOG) turned in for the first quarter. Both revenues and profits were well ahead of the Street expectations, and the company shrugged off concerns about the weakening economy. At a time when the market seems increasingly convinced that we have fallen into recession, Google's solid quarter gave investors reason to cheer as we enter the thick of the first-quarter earnings season.
The big earnings beat came at the perfect moment for what had become a pretty painful stock to own. From early November, when the share price peaked at close to $742, through last Thursday's close at just under $450, the search giant's stock had plunged 292 points, or 39%. There are a host of reasons for that. The last couple of quarters were regarded as duds, for one thing. More recently, there had been widespread angst about data from market-research firm ComScore (SCOR) measuring the "paid clicks" on the company's domestic-search advertising. The ComScore data showed that paid clicks -- the rate at which people click on ads -- had grown less than 2% year over year in the first quarter.
If you extrapolated from there, you could only conclude that Google's first-quarter numbers would be nothing less than grim. But the hubbub may have worked to the company's advantage: It allowed CEO Eric Schmidt to report that paid clicks were much better than the third-party trackers had expected. GOOG reported that paid clicks were actually up 20% year over year, which of course was a whole lot better than the 2% foretold by the ComScore data; it distracted the Street from the fact that the 20% rate nonetheless was down from 30% growth in Q4.
The Street's immediate reaction in after-hours trading on Thursday was to load up on Google shares -- and all sorts of other Internet names -- and to dump shares of ComScore, the apparently disgraced market seer. That was unfair to ComScore; its data just measure clicks on domestic search ads, not ads placed on partner sites or those outside the U.S. ComScore didn't tell people to extrapolate, but nature abhors a vacuum, and since Google itself provides no guidance to the Street, investors latched onto the numbers, imperfect and incomplete though they might have been. Nonetheless, it all allowed Google, which never offers projections, to overdeliver.
Skeptics will note that there were some other factors at work in the blow-out report. Google's tax rate was a couple of points lower than the Street expected, for one thing; that alone accounted for more than half of the difference between reported earnings per share and the Street consensus. And the weak dollar helped buoy a strong performance in international markets. On the other hand, Schmidt again insisted that the company is seeing no effects from the slowing economy. He did say, however, that the Google execs had talked it over and decided that, even if people slow their surfing, clicking and ad buying, the company was well positioned to weather the storm. Not that he sees one, mind you.
In my March 31 column, I noted that with Google down in the mid-400s, trading at one times growth or less, the stock has reached a valuation level where it might make sense to start building a position. Given last week's action, it looks as if that may have been the bottom. But even now the stock is just a hair over 20 times estimated 2009 earnings; compare that with the roughly 56 times 2009 Street forecasts that Microsoft (MSFT) is offering for Yahoo! (YHOO). That leads me to several conclusions. One, Google is still a pretty cheap stock, even after the post-earnings rally in the shares. And two, as I have asserted repeatedly in this space, Yahoo! holders are hallucinating if they think YHOO shares will see the happy side of $30 for a long time to come if MSFT were to walk away from its $31-a-share stock-and-cash bid. At 25 times estimated '09 earnings of 55 cents, Yahoo! shares would trade for a tad under $14. You sure $31 isn't enough, Jerry?
Paid Search: Ad sales at Google delivered a great March quarter, and Intel's numbers also shone. The Nasdaq leapt 4.9% to finish the week at 2403.
GOOGLE WAS NOT THE ONLY company with happy news. IBM (IBM) reported impressive March-quarter numbers, as well, and its shares rallied smartly. In fact, unlike almost every other technology stock I can think of that isn't fighting off a takeover bid from Microsoft, Big Blue is having a pretty nice year. Through Thursday, the stock was up 14% year to date. Nitpickers can find nits to pick here, as well: With most of its revenues coming from outside the U.S., the company's Q1 results got a huge boost from currency. But the bigger takeaway is that this is an economy in which size and diversity matter: Google demonstrated that, and so did IBM.
Intel (INTC) also cranked out an impressive quarter, with revenues up 9% year over year; the company's microprocessor revenues increased 14%. That's about the same rate that PC demand grew in the quarter (details in Mark Veverka's column Plugged In). Intel's positioning in some ways is reminiscent of Google. It is the dominant player in a key technology market where the strong are getting stronger. We'll get a look at results from Yahoo! next week. But we got an eyeful last week from Intel rival Advanced Micro Devices (AMD).
AMD is in a mess o' trouble. The company lost $358 million in Q1, which was an improvement from the $611 million it lost in the year-ago quarter; the company has now lost money for six straight quarters. AMD has a history of impressive resilience; it seems to cycle between periods in which it gains ground on its larger rival before giving way to Intel's far deeper pockets. But some on the Street have begun to wonder if AMD has now dug itself an inescapably deep hole. On the post-earnings conference call last week, CEO Hector Ruiz said the company plans to exit some non-core businesses and intends to reduce its quarterly break-even point by several hundred million dollars. He also said the company "in the near future" will provide details of its "asset smart" strategy, which likely will involve the outsourcing of some of its production to contract fabrication plants, and perhaps selling a stake in its own fabs.
Those seem like appropriate moves. But I can't help thinking that AMD has become damaged merchandise, a company that will at best continue to frustrate investors and at worst could find itself headed for a financial crisis. Buying Intel shares is a bet on the continued strength of the PC business. Buying AMD shares is a speculation on the company's ability to extricate itself from both nasty competitive issues and a financial mess.

ERIC J. SAVITZ ( BARRONS )



I SAY BUY ON THE DIPS FOR THE NEXT FEW YEARS AND WITHIN 3 - 5 YEARS GOOGLE STOCK PRICE WILL BE WAY OVER 1000 A SHARE ! THIS IS A LONG TERM PLAY !!!

1 comment:

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