Angling into GOOG puts

[DemonD]

Re: Angling into GOOG puts

Clue, most of your arguments are sound, let me just add warnings to the following issues.

Actual advertising numbers: $300M (US), $400M (worldwide)

First, the link you quoted stated $300 BILLION, and international to $400 BILLION. (and csco was 500b not 500m)

Second, the growth rate for online advertising is 15% projected for 2007. So while total ad revenues may be flat or falling, internet advertising will be annexing other forms of advertising. Again, this is from your link (the growth rate.)

Third, when you speak of "Is this 2000 again?" That's been the argument against Google from the beginning. Yes Google is a "sexy" stock and by simple p/e ratio is overvalued, but not by traditional PEG ratios. I do not know how much cisco and microsoft were growing, but I know walmart was not growing at 30% in 2000 when it hit a p/e of 42. Companies that are consistently growing 20-30% will always have high multiples.

However, this leads me to a conclusion, where I will make an argument for you. Most companies that average 30% YOY quarterly earnings increases are not doing it by having 28, 32, 31, and 29%. It's a lot of times more like 5%, 60%, -20%, and 40%... and of course an earnings "miss" (meaning anything less than what, 30% growth) means your play turns into a winner. And this would be the right time as 2nd and 3rd quarters tend to be slower for online ad revenues.

I'm not sure where Google is going to end up. It will likely continue to have a p/e contraction down to about where msft and cisco are (in the 20-30 range). But if Google keeps growing 15-20%/year, which is not unreasonable in the long term based on csco and msft, it's price per share will continue to appreciate. You are likely right though, it will be a very bumpy ride and puts are certainly a good way to play a tech stock that is probably slightly overbought and breaking through all-time highs.

[DemonD]

Re: Angling into GOOG puts

one more thing:

I really like discussions like this, it helps educate me too so I would definitely enjoy and future topics of a similar nature.

[Guest]

Re: Angling into GOOG puts

Yeah! Where the devil is that C1ue Gila Monster anyway?

[c1ue]

Re: Angling into GOOG puts

First, the link you quoted stated $300 BILLION, and international to $400 BILLION. (and csco was 500b not 500m)

Oops it was my bad

I appreciate your opinions and frank discussion.

I live in the Bay Area and thus am near Google - and know many people who work there. I've also been in the tech industry for quite some time and have grown up with the Internet since the mid-80's.

Many people are assuming that Google can take their prowess in search and both grow their existing strength indefinitely and also find/dominate new areas.

I disagree - Microsoft has just as many people with just as much money thrown in all directions, and they have YET to dominate a space outside of their cash cow in 20 years. What they have been able to do is kill nearby competitors by sucking in nearby functionality and offering it for free.

Google is doing this also - their search/Adwords success is leading to popup ad sales success. I'm still unclear as to how effective popup ads really are though. (popup in this case includes the on-page ads Google is sprinkling everywhere)

It is not an issue of intelligence or focus so much as it is impossible to dominate in any new field when you have multiple competitors with just as much money, intelligence, and determination. Thus you can't outthink, outspend, or outlast them. Only when ALL of your competitors screw up is this possible, and it is extremely rare when you are the leader.

Furthermore while Google has search domination - the monetization is not specifically a function of search.

I firmly believe that the Craigslist model will ultimately compress profitability in all 'proximity' related outreach - such as local advertising.

Ebay is already feeling the heat as more and more urban people find out that Craigslist can do the same thing, but without the fees.

At the national/international level at some point someone will come up with a comprehensive media offering. Google is doing well now just because they're cheap compared to other forms of advertising, but I am not convinced that this relative cost advantage is defensible long term.

The cow being milked now is the large numbers of people relatively new to the Internet who rely on Google to find stuff for them - I am assuming they will increase in Internet proficiency and as a result Adword based revenues will be pressured.

Similarly the first businesses to grab Adwords at present are benefitting very well, but eventually it will still boil down to repeat customer interaction - and I'm not so sure customers will use Google search to find sites they already like!

Finally as you noted, non-Internet advertising is huge and pervasive while Internet only advertising is very focused.

Until I see Google have a clear solution integrating into the full advertising mix - they're just an aggregator of low cost Internet ads who will get creamed once a big boy like McCann gets their machine rolling with a decent search+internet presence acquisition: ok, you drop your ad budget by 85%, pay me 100% of it and I'll throw in the popups for free.

The good thing about Internet advertising is that you have relatively low costs - the bad thing is that you have ZERO moat except your reputation.

Lastly I also am concerned about the 'gold-digger' aspect: one negative of being a large public wealthy company is every gold-digger in existence in that field beats a path to your door.

Not many companies have successfully navigated around the negative effects of this category of employee - and Google's tremendous hiring spree means there are a lot of them already in (and some of the Googlers I know are these types).

As I noted before - all this doesn't mean Google does a Netscape. But it is a large reason why I view their present valuation and growth rates with extreme prejudice.

[DemonD]

Re: Angling into GOOG puts

Not many companies have successfully navigated around the negative effects of this category of employee - and Google's tremendous hiring spree means there are a lot of them already in (and some of the Googlers I know are these types).

As I noted before - all this doesn't mean Google does a Netscape. But it is a large reason why I view their present valuation and growth rates with extreme prejudice.

Understood, and good points to all. I'm also not predicting "Google to 1000!" My overall point is more to tread carefully.

Just wanted to ask, I thought Google was a very difficult job to get. Kind of like harvard one position opens up they get hundreds of applicants?

[c1ue]

Re: Angling into GOOG puts

Just wanted to ask, I thought Google was a very difficult job to get. Kind of like harvard one position opens up they get hundreds of applicants?

Depends on the job you want.

Google (and Yahoo and most search engines) employ a lot of people who do manual ordering of search pages to serve the paid ads.

These jobs are easy to get - especially if you speak(read) foreign languages.

If you want to be a hot-shot search engine algorithm dude, that is of course difficult.

On the other hand, if you are doing something which Google wants - they (and other search/Internet Ad companies) are also buying small companies with potentially interesting ad angles - note the word 'potentially'.

All this talk about Google free wireless internet - either city or wireless license based - is just a distraction from the fact of what Google really is.

The other thing I would be scared of is Google's margins are still eroding.

[DemonD]

Re: Angling into GOOG puts

New high for GOOG = better price for 520 jan 08 puts?

btw i'm like %.7 from a double on Goog. It's outperformed gold for the past 2.5 years hehe.

[c1ue]

Re: Angling into GOOG puts

New high for GOOG = better price for 520 jan 08 puts?

Yes, but given a market spike I chose to buy Jan 2009 520 puts yesterday instead.

[DemonD]

Re: Angling into GOOG puts

Let us know how it works out... I'm now over 100% gain (cost basis: 291.60/share). So far my best investment, lol. I keep thinking of selling, hard to sell though when shares keep rising.

[Jim Nickerson]

Re: Angling into GOOG puts

Let us know how it works out... I'm now over 100% gain (cost basis: 291.60/share). So far my best investment, lol. I keep thinking of selling, hard to sell though when shares keep rising.

DemonD,

A newsletter I follow, The Chartist, on Friday 10/5/07, put out a sell signal on all of its positions except two and for three positions for which partial liquidations were recommended (I'm going to make a comment in the bearish thread about this when my damned DSL which is screwed up allows me to get a post in). One of the positons partially maintained was GOOG, where the recommendation was to sell 25% of the position which was purchased at 407.52 on 11/22/05 and through Friday's close had a profit of only 45.77%. If you haven't considered a partial liquidation of your position, it's is a consideration.

[DemonD]

Re: Angling into GOOG puts

I likely would have sold my GOOG position a month or two ago if I hadn't liquidated my mutual fund holdings to cash in august. I'm keeping most of my individual stock positions as inflation hedge. Also, many many times people have said to sell google over the past 2 years, so yeah ::shrug::. I have enough cash, my position in google isn't large (let's just say i have less than 10 shares), and I don't really see any stocks at firesale value that I would be comfortable buying.

[c1ue]

Re: Angling into GOOG puts

Adding another tranche into Goog puts - January 2009.

4 tranches left...

[DemonD]

Re: Angling into GOOG puts

While I think Google may bubble up higher, I'm now at the serious point where I'm considering either selling my stock or buying puts myself to hedge my position. For comparison:

Market capitalization (per yahoo)
WMT - 191.45B
GOOG - 198.95B

Yeah as much as I love goog, it seems to me the pricing action looks like short-term overbought - I wonder if there is some hanky panky pumping going on.

[c1ue]

Re: Angling into GOOG puts

DemonD,

I've put in a 3rd tranch - the 4th won't go in unless I see Goog 1000.

Take the money and run! The pump and dump is about to go into the final stages. Look at the action in the past week to get an idea of what is happening.

[DemonD]

Re: Angling into GOOG puts

clue... are you referring to goog or to the market overall?

part of the reason i'm hesitating on selling google is because of the following:

With good arguments from the itulip community, I sold off a good portion of my mutual funds in my taxable and 401k accounts in february and my other main mutual fund in august. Part of my august sell off was in reaction to EJ's post titled "7 years, 2 warnings."

I now believe those were both grave mistakes. here is why:

Also with input from itulip, I believe we are going to be in a rapid (if not hyper) inflation where stocks will be a suitable hedge against inflation. I am hoping for a black Monday type event to get back in, but I'm not holding my breath. I think the market will correct at some point. I do believe that gold is a good hedge, but my preferred way of "playing" gold involves stocks, not physical - please I know many will want to jump on me about this, it's my current choice, no arguments to me please, I've seen enough arguments to be convinced by now. But the point is that while I believe there may be some short-term deflationary action (due to the financials destroying money), when or if a significant market correction comes, there will be a repatriation of dollars into PM's, oil, stocks - assets with good growth prospects. This is why I wished I had not sold, despite good arguments from the contrary. Fortunately I did keep some significant positions, and while I'm considering liquidating Goog, the question as always is - what to do with that money? Keep it in cash? Buy gold? Set up an everbank account in canadian dollars?

Further, I believe the non-financial companies are more or less fairly valued in the stock markets - on an individual basis. Google I will admit is overvalued, but it is not insanely overvalued. 1000 would be insanely overvalued IMO. But the US stock market as a whole (except for financials) is not in bubble territory like it was in 1999 and 1929.

I heard an analyst recently say the following: "The production-consumption economy is working fine. The financial economy is not." I still believe strongly in PM's, oil, water, tobacco, and to a lesser extent gambling and alcohol as good things to invest in over the next 5-10 years.

Please note I'm not being a pollyanna bull. I am just doing what I do to analyze what investments will make me as much money as I can in this world.

In any case I think a put position here is probably a good play, I think you are right. But clue, let me just ask again in case you missed it, and I really want to know - when you talk about the market action, are you referring to Goog or to the market as a whole?