Tuesday, June 26, 2007

Six Reasons to Hate Google

The markets vacillated wildly across and around the flatline on Tuesday in anticipation of the Fed's Open Market Committee meeting on Wednesday and Thursday. The Fed is expected to do noting regarding interest rates, so the markets ended up mostly marking time, drifting to the downside.

Dow 13,337.66 -14.39; NASDAQ 2,574.16 -2.92; S&P 500 1,492.89 -4.85; NYSE Composite 9,774.29 -32.89

Volume was on the heavy side with plenty of money changing hands and some consequence. Losing issues outpaced gainers by a 7-5 margin. New highs rolled over and died, finally, with new lows leading, 224-142.

Oil futures eased a welcome $1.41 to end the day at $67.77. The selloff in precious metals continued with gold losing $9.40 to close at $645.30. Silver lost nearly 5%, 60 cents, ending the day at $12.28.

In the absence of any meaningful market news (all will be forgiven after the Fed meeting), I give you my screeching anti-Google homily.

I generally dislike huge, multi-billion dollar companies as a rule, but Google is one over which I stumble at least a couple of times daily, and I felt it was time the Googlers at the Googleplex (there's a good reason to hate them right there - moronic nomenclature) - to be taken to task for being more hype than reality.

With the share price hovering close to all-time highs (as I write it's at 530), Google is the darling of Wall Street. No more time to waste, let's start the list:

  1. Google's share price. It's too expensive to own more than maybe 100 shares for most people, self included. A solid reason to hate them being that you can't even join them to any satisfactory degree. Worse yet, nearly 25% of the shares aren't publicly traded, meaning that the company, and it's 40+ p/e ratio is even more overvalued than at first blush.

  2. Valuation: Investors value Google at $165 billion. To put that in perspective, if you spent a million dollars a day, it would take you 452 years to spend all of it. Google will likely be a footnote in history books by then (circa 2469), which brings me to the next point...

  3. Google and their founders, Sergey Brin and Larry Page are so filthy rich because they invented what? A supposedly better way to find web sites CREATED BY OTHER PEOPLE. Yes, their vaunted algorithm is just an overzealous channel flipper. Big deal. Lots of other companies (Yahoo, MSN, Ask.com) have created search engines, many of which work just as well as Google's. And finding - and capitalizing - on other people's work, which is how search engine companies make money, is a purely parasitical practice.

  4. Google is a one-trick pony. They've got their search engine, but roughly 98% of their revenue comes from various ad schemes, serving ads on their search engine results pages (SERPs), and, again, on other people's web sites. All of that money is being made on the backs of small businesses (and some large ones).

  5. Secrecy: Google keeps most of their business practices shrouded under a cloud of secrecy. How their search algorithm works is secret. How much they pay out to publishers in their Adsense program is a secret. Disclosure is cause to be banned. As a publisher, I have only myself to blame for signing on to a closed-ended contract. I don't know how much Google keeps on every click on my site, but I'm certain it's more than the usual 15-20% agency fee. Likely, it's a lot more.

  6. The Don't be evil motto. This is probably the most annoying statement of anything I've ever read. Google has stepped on the toes of millions of webmasters, run afoul of copyrights in numerous instances and complied with the censorship issues of the Chinese government. Through all of this, they maintain a "good" image. The truth is they're as ruthless and profit-driven as any old-school corporation.

There are more reasons to dislike, despise or hold Google and their culture in contempt. These are but a few. A word of caution: reading this may cause you to lose PageRank. Just kidding, but, on a serious note, Google looks like the perfect short candidate at this time. In the second quarter, they eliminated a gaggle (of course, nobody knows for sure how many because that's a secret) of arbitrageurs from their AdWords/AdSense program and lost out on at least ten days worth of eBay advertising when the auction giant pulled all of their ad campaigns in response to Google's anti-eBay, pro-Google Checkout protest, planned to coincide with eBay Live.

Google backed down (yes, they're weenies, too) and eBay began running ads again, but it's estimated that eBay's annual spend is upwards of $300 million, so Google may be short about $8 million from that one source. Meeting their quarterly estimates may be a challenge this time around.

My suggestion is to buy August 480 puts at around $3.50 currently. Google announced earnings on the 19th and the options expire on the 20th, so the July puts are cutting it a little close. But should they miss, a 50-point shave could be in the offing. Happy Trading.

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