Is It Time To Buy Google?

Google shares have taken a beating since last year puking up some $500 per share since its highs back in November 2006. After coming off a Turkey bottom at $247 in November 2008, we ask the question "Is Google A Buy?"

The quick answer is, "no", not in the near term and not above the $400 price level.

Google announced yesterday that they are laying off 200 employees globally in sales and marketing, this coming off the announcement earlier in the year that they were letting go 100 recruiters.

While this is such a small percentage of the entire organization (Google employers over 20,000 people), its not the number of people that is a concern but the type of people that are letting go:

Recruiters = growth
Sales/marketing = revenue growth

The axing of the 100 internal recruiters was a sign of slow growth ahead and my interpretation of a company going into "sustaining mode". Having worked for companies like Lotus, IBM, and Xerox, I been through my fair share of companies that wobbled up and down in peaks and troughs. Sustaining mode is one where the organization keeps its head above water maintaining existing product lines but not innovating. Output becomes flat.

However, if sustaining mode becomes prolonged in duration, laziness settles into the organization. By laziness, I mean lots of intelligent people who are burned out working a prior upsurge in a business wave are just showing up at the office for the paycheck. They struggle trying to find the next big thing to back their company on, come up with dumb ideas of something old, and try to look important and busy by creating new hip words and phrases to make it look "new". Management knows it, employees know it. But the common shareholder doesn't. I've seen it time and time again until layoffs start to accelerate. Google is not in laziness mode, but could very quickly be resembling the old Yahoo! if they dont start showing innovation and leadership again.

Google is all about monetizing someone else's content. They don't own much of anything they advertise on - they don't have to. They rely on other people to create and build the content. They just point to it, broker it, and ring the cash register. Unlike television where the company pays for the content and monetizes that through tv commercials, Google wants the content for free without they having to do anything to create it.

The game of "getting something for nothing" doesn't work. Expecially when they step foot into someone else's work (movies, books, music) that they don't own, thats when all hell breaks lose. This model of referencing someone else's work and monetizing it has worked well for them. Adsense is a billion dollar business and they have done this extremely well with it.

But at some point, if Google wants to grow as a company to be more than just a reference point and broker, they will have to come up with their own unique work. Just like how Nintendo goes out to create the gaming platform, Google will have to outsource for content and have their people manage it in terms of quality. What I mean here is, they need to produce their own unique content and brand it. Not in the form of applications but content itself.

Today Google announced that they were going into the TV ad brokering business via Google TV. Their plan to line up video content providers like NBC Universal and Bloomberg TV seems flawed. Why would advertiser want to display ads on worn content not coming originally from the source? If I can go to Bloomberg TV or NBC directly to view content, why would I want to see an ad placement in the middle of my viewing pleasure?

Now there are going to be times when people just know where to look. For example, I can go to NBC to go watch The Office episodes. By knowing this, Google isn't involved. But for those who don't know and have relied upon Google to find things for them, Google will point them to the appropriate web page. Google becomes part of a search and distribution system helping media companies monetize their content.

But one would think that after a few times of this "search and view" process, the viewer would just "get it" and go immediately to the source. That, of course, is unless companies like NBC and Bloomberg decide to let Google be the main distribution site for all their content (I seriously doubt that will happen).

So why are these content companies relying upon Google? I would say just because its another potential revenue source. Its sort of like movie companies coming out with a movie fully knowing now that they can put the DVD out on the market to Walmart or Target to sell the original and make some extra bucks.

But unless the content is privileged through subscription, I don't see what the big deal is.

So far, the $1.65 billion purchase of YouTube in 2006 has been a flop in my view. Looking to capitalize off the video content wave, Google missed something - that companies like Comcast, AOL, and Yahoo! could deliver video just as well. More so, that the major tv broadcasting companies are offering their tv shows for free online. So what did Google get when it bought YouTube? The underlying technology framework and the ability for amateur video professionals to post videos on skateboarding off a roof into a swimming pool. Advertisers wont bother placing ads for that kind of junk. That aspect of it turned out to be a failed strategy. And the original content providers smartened up and created their own production company and websites to deliver on their sites, monetizing their own content.

Is Google Turning Into An Old Fuddy Duddy Company?

Google reminds me of companies like Xerox where they are tied to a few product lines that grow boring and stale. Xerox copiers, printers and paper products is boring. Its like watching episodes of The Office portrayed in the fictitious company, Dunder Mifflin.

Google is better than that and can innovate with their group of people if like most things, they are motivated highly. This year most should be. On March 9, 2009 their options got repriced at $308 a share. This is true motivation ala Silicon Valley style.

But having worked for several large hi technology companies myself, I do know that when intelligent people get together and there is nothing exciting to stimulate them, they get bored - real fast. That's usually marks a time when the company reorganizes, trims the fat, and goes into "line of business (LOB)" mode where the company is cut up into little divisions each held accountable for the life, blood, existence. LOBs that fail to deliver, get cut from the payroll and reamed in press releases.

So unless the economy really picks up and advertisers step in to follow in boom times (unlikely), I don't see Google trending up, more like heading much of nowhere between $275 to $425 a share. Given its present price is $347, that would not make it a very good investment here.

Technical Analysis of Google

Want a sense of what I'm seeing? Look below:

For technical analysts who study stock patterns, the triangle above is called a broadening pattern. It is a directionless movement of back and forth across the vertex (here roughly $340).

As the broadening pattern "opens up" over time, so does the volatility. One can never really sense the direction the stock wants to go, so investing is very difficult as there is no trend. This sort of pattern is more suitable for daytraders and position traders attempting to exploit the movement.

So my suggestion is to trade it, not invest in it. It is only a buy (and short) for a fixed time frame that you set and for what percentage gain you are seeking within it. As a Silicon Valley resident, I'm pulling for Google. They are a damn good company, but one caught up in like most companies, in an economy that just may not be ready to turn yet. Stock charts will always be interpreted differently but having been through a recession here in Silicon Valley back in the latter '80s, I don't see this one being much any different