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Party like it’s 1999? Beware a post Valentine’s
Day Google hangover
By Jim Hedger, StepForth News Editor, StepForth Placement Inc.
February 11, 2005
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Just when we're getting used to the idea that money is about to flow
like it did at the end of the 90's, dark clouds and volatility is visible
on the horizon. Optimism springing from Google's fourth quarter financial
report should be tempered with memories of the industry wide alcohol
poisoning suffered in the days after the last time we partied like 1999.
On Monday February 14, 177-million shares of Google will be made available
for sale as a time limit on shares held by Google employees expires. This
doesn't necessarily mean that the market will see 177-million shares suddenly
appear, but with Google's share prices slipping 12% over the past week,
high trading volumes are easy to anticipate.
On February 2, Google's share prices peaked at $216.80. Yesterday, Google
share prices closed at $187.98, a drop of $4.23/share. (As of this hour
shares are trading at $191.32.)
Earlier this week, two key Google insiders sold blocks of shares. Venture
Capitalist and early investor John Doerr sold approximately 150,000 shares
for about $30million. Co-founder Sergey Brin also sold off roughly 167,000
shares for about $33million.
Google stock is not going to tank but share prices will likely decline
in the coming week. Many of these shareholders waited years to cash-in on
their options. Most of them will be transiting from being a paper-millionaire
to being an honest to goodness real-money millionaire. Early Google employees
are among the IT-world equivalents of rocket scientists and it doesn't take
one to know that there will be a lot of quasi-rocket scientists dealing
with intense pressure to sell their shares quickly lest they personally
risk losing hundreds of thousands of dollars by week's end.
Regardless of the volumes expected on Monday, it is highly unlikely share
prices will fall too far unless investors fall prey to panic as NASDAQ numbers
are sure to be brought sharply lower next week. Investors can only appreciate
that Google is currently a money machine and the market is large enough
to support numerous contextual ad-delivery networks of differing types.
Investors will also appreciate the fact that Google is leading the search
field in expanding search related advertising to its growing network of
search related services. It also counts about a quarter of the Fortune1000
companies as high market advertising clients.
While Google should continue to please investors, they still have something
to learn about pleasing analysts. On Wednesday, Google held its first ever
Analyst's day. From all reports, it was a weird day and not exactly a dog
and pony show. They didn't have any hard number crunchers for analysts to
analyze numbers with but they did have a speech delivered by their head-chef.
The New York Times quoted one analyst, Mark S. Mahaney from American Technology
Research who said, "They had a formal presentation by their chef but
not their chief financial officer. I have never been to an investor day
where the C.F.O. didn't speak." Apparently back on the East coast,
CFO still stands for Chief Financial Officer. On the West Coast it means
Chief Food Officer, hence the speech from head-chef Charlie Ayers. Actually,
Google CFO George Reyes was at the event in the role of moderator but he
did not give a formal presentation.
CEO Eric Schmidt did disclose that Google spends about 70% of its resources
improving search and advertising services, 20% on search-related products
such as Gmail, Froogle and Desktop, and about 10% developing experimental
ideas like Keyhole. One rumoured experiment they are adamantly denying is
an anticipated Google Browser. He also said that the BETA label currently
wrapping services such as Google News, Gmail and Groups, and Desktop might
stay in place for up to five years. For Google, being in Beta means significant
improvements might still be made to the product.
Google is growing rapidly, a pattern that will likely accelerate if it
can find enough qualified employees. Investors might be nervous about Monday
but chances are Tuesday will be more of a light hangover as compared to
the hemorrhage in 2000.
Google shares (yesterday):
Last: 187.98 Change: -3.60 (-1.91%) Time: 4:00pm Open: 192.21 High 192.21
Low: 185.25 Volume: 18984186
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