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GOOG Drops 5% - Google Shareholders Taking a Beating
It’s no suprise Google, Inc (ticker:GOOG) has been finally seeing a decline from it’s unprecedented advance to an all time high of $747 per share in November 2007 but nobody predicted the rapid descent the stock has seen over the last few days. Google shareholders are scrambling to recover their losses as the stock has lost over 5% and dropped from an opening price of $653 per share on January 14th to a close of $617 per share this afternoon. At one point in today’s trading (1/16/2007), GOOG was down as low as $601 per share and almost fell beneath the $600 per share mark. A glance at Google’s chart for the last three months will emphasize the trend downwards and shows a classic “Head and Shoulders Pattern” which is generally generally regarded as a reversal pattern and it is most often seen in uptrends. It is also most reliable when found in an uptrend as well. Eventually, the market begins to slow down and the forces of supply and demand are generally considered in balance. Sellers come in at the highs (left shoulder) and the downside is probed (beginning neckline.) Buyers soon return to the market and ultimately push through to new highs (head.) However, the new highs are quickly turned back and the downside is tested again (continuing neckline.)
GOOG 30 Day Chart - Showing “Head and Shoulders Pattern”
Glancing at the 1 year chart for GOOG, you can see the current “Head and Shoulders Pattern” pattern was preceded by a huge “Bull Run” leading up to the cuttent levelling off of this rapid climber.
GOOG 1 Year Chart - Showing Bull Run
Finally, if we look at the 5 day chart for GOOG we can see the results of the “Head and Shoulders Pattern” after the bullish uptrend. This one has sell written all over it. Notice the dissipating volume on the “tops”. The first close beneath the neckline was followed by a dramatic sell-off. And check out the big spike in activity on the collapse.
GOOG 5 Day Chart - Showing Downtrend
Why is Google’s stock on such a rapid decline? Call it the rosy scenario syndrome: Analysts expect double-digit earnings growth for a stock over the next few years and the market reacts by buying up a stock at an over-inflated value, thus leading to a rapid decline when the analysts begin to make adjustments in the company’s future. In the abstract, and if the analysts turn out to be right, that’s good news indeed. But the market is especially efficient when it comes to pricing in (or discounting for) growth stories. So, when macroeconomic data or industry-specific news comes along and shakes up the rosy growth story, highfliers like these will drop in a hurry.
Over the last few months, Google has engaged in some high flying press releases that had market makers and industry analysts alike charmed by the potential of this technology darling but like a fickle lover, the affiar is over and Google’s tactics have resulted in a reverse scenario for potential earnings. Coupled with the fact Google has been on the warpath against the webmaster community and competitors, many of whom are now disgruntled ex-shareholders, a recovery is unlikely in the near future and we can expect to see Google’s value depreciate over the coming weeks due to negativity in the blogosphere and webmaster community that will spread into the public sector.
Google versus Webmaster and SEO Community?
For anybody who is unfamiliar with Google and their necessary, yet hostile relationship with the webmaster and SEO community, you must remember that 90% of Google’s earnings are derived from their Adwords advertising program. When Adwords subscriptions are down, the company’s earnings are down. As an Adsense publisher, I have seen the decline in quality advertisments in the Adwords system as displayed on the Adsense ads on my websites. Where a year or two ago, the quality of ads and the revenue generated by clicks on those ads was unrivaled by the competition, 2007 saw many publishers and advertisers both seeking other alternatives to Adwords and Adsense due to misappropriations and unethical business practices by Google. The number of publishers unfairly banned from Google’s Adsense program with their earnings confiscated has only led to an unhealthy resentment for the search giant and many of those banned were also Adwords advertisers and have consequently pulled not only their ads from Adsense but have pulled their clients ads from the system.
Additionally, Google’s unscrupulous attack on bloggers and webmasters who were making a living from sponsored review programs such as PayPerPost and SponsoredReviews, lowering their pagerank and crippling their search engine visibility has led to yet another backlash that will have a permanent negative effect on Google’s future earnings. As if that weren’t bad enough, a week ago, Google announced they were cutting off their Adsense/Adwords referral program to affiliates outside of North America, Latin America and Canada. This move enraged the vast majority of bloggers and webmasters outside that realm because Google essentially took money right out of their pockets for no good reason other than they decided to do it.
Can Google Survive Without the Webmaster Community?
The answer here is a resounding NO. Google is an internet based company and without good working relations within the online community their business model is doomed to failure. Although there is widespread rumours of Google purchasing a significant spectrum of wireless bandwidth and launching a Google-Phone, those rumors are merely a fantasy of loyal shareholders and most likely will not materialize and even if they did, the animosity Google has conjured in the online community will likely mean a monumentous faliure were they to launch such a product or service. The damage to the company’s image has already been done and at this point Google will be lucky to retain the advertising business they currently posess.
What About Google Auctions?
Another widespread rumour from the fountain of mis-information is that Google is going to launch an online auction site to compete directly with auction giant EBay. Once again, the same people who were scorned by Google, webmasters and bloggers, make up a significant amount of Ebay’s membership and it is highly unlikely they will abandon Ebay for a new Google service. Yahoo tried their hand at creating their own auction services and it was a miserable failure because the only people who left Ebay to go to Yahoo auctions were scammers and thieves who were banned from Ebay’s system. If Google launches a similar service, you can bet it will be the criminal element and scammer refugees who will populate the system if and when it goes live.
Essentially, as the old adage goes, Google has “cut off their own nose to spite their face”. Google was built into the biggest search engine on the internet when they were the champiion of the webmaster community. Alienating themselves and damaging the very community they emergedfrom was a costly and ignorant mistake on the company’s part. If you remember the dotcom boom and the subsequent bursting of that bubble, the Web2.0 boom that has been spearheaded by Google and about ready to burst will see it’s flagship going down in flames as an indicator of the death of yet another viscous cycle in the technology industry.
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Technorati Tags for this article: Google, GOOG, Adsense, Adwords, SEO
by Barbara
WTF is going on with Google? I bought 1500 shares at $700 because my broker told me it was going to be $800 by the end of January, now I’ve lost so much money I am going to kill myself.
by Terry Gillis
I wouldn’t pay $50 a share for GOOG. Anbody who bought into all the hype will learn a valuable lesson about the market and I’m sure all those brokers out there going short are licking their chops.
by GenXStockGuru
Amazing article Dave, I know you’ve been saying GOOG was going to drop below 600 at the start of the new Year since back in October 2007, but I never really anticipated the dramatic drop it’s seem. Once again Dave, you were right on your call. I’ve known you for a long time and you called the dotcom boom and the fall of it back in the 90’s when we met at Raymond James and you made me a lot of money in the past. I only wish I would have been shorting GOOG like you did, you lucky bastard.
by C4G
@Barbara, an investment is never a reason to even think about ending your life. You should, however,consider your options at this point. As with all stock investments there is an inherent risk we take when taking a position.
One thing I learned a long time ago is never to risk more money than you can comfortably afford to lose.
by C4G
Kirk, you know I don’t open my mouth unless I’m sure about it. I learned my lesson about that when my damn uncle lost that $60K on PSIX because the fool was going long on a tech stock. He still doesn’t speak to me to this day and blames me but I told him to get out when he would have made $60K instead of losing it. Same thing, I’ve been telling everyone I know to be careful with GOOG. Let’s face it, the only stock that can rise continuously is Berkshire Hathaway but Warren Buffett isn’t a Gen-Y slacker like Sergey Brin or Larry Page.
by Jonas
Why didn’t Google split their stock? Are they trying to compete with Buffet ? Prices such as Google’s make it more difficult for individual, or retail, investors to buy and sell stock. At a certain level, the retail market gets priced out and only institutional purchases are being made. It’s a disaster scenario.
by Snowball
This is probably one of the most in depth and accurate articles I’ve read recently on the demise of Google Inc and their stocks subsequent fall. I think GOOG was over-valued anyway and it was only a matter of time bfore the market made corrections in the valuation.
by GOOG (Google, Inc.), the Bloodbath Begins « Gen X Stock Guru
[…] If you want a very realistic view of Google’s entering a decline after assuming a head and shoulders pattern followinf a bull run, please see my friend Dace’s post GOOG Drops 5% - Google Shareholders Taking a Beating. There’s no need for me to further elaborate on the positions he’s taken in the article Google’s meteoric rise and potential to be the biggest falling star the market has ever seen. […]
by lubomir
nonsense…whole market is down for reasons that got nothing to do with the comp fundamentals, but you need to see beyond tomorrow. it`s gonna take about 6 month and everything will look different and the big G will be over $800/a share
by C4G
lubimor, no offense, but if you wouldn’t mind explaining why you think Google will reach $800 a share in 6 months, I’m certain anybody reading the discussion here would appreciate a n explaination.
Without the risk of sounding repetetive, as far Google’s “company fundamentals”, I do believe that several aspects of the hype that Google is using to trump the investment community are clearly highlighted in the article. That is, unless there is some “secret weapon” Google is going to unleash to endear them to investors.
In my experience, any stock that loses roughly 1/4 of it’s value will not recover, let alone gain 30-40% in 6 months time. It’s simple mathematics.
by Hero
Google is seriously hurting. I wonder if they can really rebound from this losses ?
by Wise-Owl
Why is everybody so against Google ? They are the biggest internet company and they are the best search engine ever. I think you are blowing it out of proportion.
by MacHater
Apple will be the next big tech stock to feel the bite like Google. I think they are a over-rated like Google and they are experiencing some negative press caused by an SEC investigation.
by mrrob
I’m happy you’ve shorted it to this level if you did. But some of your points are irrelevant to their earnings. Who cares if the webmaster and blog community gets or is ‘disgruntled’. It has no bearing on whether they will continue to use and support Google. After all, it’s about $$. If you’re blogging or building sites for a living, you go where the traffic is. You can’t make a living from Yahoo and MSN alone. I don’t these points having any bearing on current or future share price.
by P. Cruby
MacHater,
Judging from your web name, your comments are most likely based more on your sentiments than any sound, logical reasoning.
It’s a wise person not to make unfounded comments based on emotion!
by C4G
@mrrob, you made my point exactly. Webmasters go where the traffic and the money is. I think 90% of the successful webmasters realize they don’t need Google, Yahoo, MSN or any other search engine to make money online. Two examples are John Chow of JohnChow.com and Marcus Freind of PlentyofFish.com - When Google bitchslapped John Chow last year, and he wasn’t even in the Google SERPS for his own name, he didn’t lose any money, in fact, his earnings incresed. BUT, the ripple effect it had on the community around Mr. Chows site was one of certain negativity aimed at Google for singling out one person and trying to make an example of them. The same just happened again with PayPerPost bloggers. If you’re unfamiliar with either John Chow or PayPerPost fiascos, you can use your Google to search for them.
You’d have to be totally blind to not see that Google is dependent on the webmaster community for a vast portion of their earnings. Not the other way around. To make my point further and clearer, this site Code4gold has *NEVER* existed as a profitable entity due to Google traffic. In fact, I could care less about Google, the Adsense ads her eonly bring in 3-4% of our total income and we get very little traffic from Google…
As you eloquently stated, the webmasters go where the traffic is and that’s what I do. I use social networking, social bookmarking and the best method for promotion, word of mouth. I could care less if this site dropped out of Google all-together because it wouldn’t hurt us one but because there are too many other opportunities out there to waste time focusing on just one.
by GenXStockGuru
I can’t believe any of the people commenting here that are saying Google is not affected by the webmaster community. Are they serious? Sounds like some people are holding positions they can’t afford to hold and are getting bitter.
by C4G
I don’t agree with the Apple valuation presented by MacHater, however I do believe that AAPL would be wise to do a split soon. Letting astock get priced over $200 per share doesn’t work in the technology sector. It may work for banks and Berkshire Hathaway but no way is a tech stock ever worth more than $200 per share to the common investor.
by MacHater
Seriously, I dislike Apple because of their shady marketing tactics. They go after school children and leave the parents footing the bills for their pricy and cutesy products. As a parent of three teenage children, I’ve shelled out my fair share of dough for iMac’s and iPod’s and all the other crap Apple turns out marketed towards my kids just so my kids don’t feel excluded at school. Plus, Steve Jobs is just a creep, plain and simple, the man is a monster.
by theBULL
GOOG Chart with annotations…..
http://aycu23.webshots.com/image/41702/2004934588803249864_rs.jpg
Overhead resistance: ~ $630
200-ema: ~ $586
Fib Zone #1: ~$553
Fib Zone #2: ~$503
Just a day playa myself. I usually dont mess with GOOG… but I will definitely consider a long @ $503 because that is the most heavily support fib zone. Of course we got to adjust our stop limits because you know those market maker crooks will never hit a zone exactly…. causing some slippage of our desired entry if we use tight stops. Yes, they can see our stops.
Good luck to my trader homies!
by MOUSE
THE GOOGLE BUBBLE HAS POPPED BUT MORE DEFLATING WILL FOLLOW. HOW FAR DOWN IT CAN GO IS FRIGHTENING AND EVEN MORE SO SINCE IT HAS A CULT FOLLOWING MORE DOPES WILL BUY IN AT 500-600 LEVELS AND BAIL HUGE ON MARGIN CALLS WHEN IT GETS TO LOW 300 AND 200′S. INVESTORS HAVE BEEN DUPED AGAIN BY WALL STREET ANALYSTS LIKE IN 1999.
WHAT DID YOU THINK THESE CROOKS CHANGED THEIR WAYS? LMAO
by James
I never realized so many people were so divided on the subject of Google stock prices. All I know is that they are too expensive for my portfolio and that is a stupid move on a company like Google’s behalf to exclude ordinary investors and cater to the rich people.
by Hialeah
I distrust Google. they are nothing but wolves in sheeps clothing. their motto of “Do No Evil” is such a fat lie it’s not even funny. Why am I pissed? You would be too if Google Adsense ripped you off over $3000 because of supposed invalid clicks that they won’t offer any proof for. I can understand banning a site with a CTR of 10% or higher but mine was less than 1% and I had several million impressions. For them to take all my earnings and confiscate them, I will find every Google discussion on the internet and badmouth this scumbag company until my fingers are bleeding from typing.
I hope their stock goes down to $5 per share and everybody who worships them loses their home, car, everything because Google drageed them down.
Screw Google. They are nothing but thieves and anbody worshping at the alter of the internet satan should get punished along with them.
by mad_maxxx
Pokemon
by GenXStockGuru
What pokemon has to do with GOOG I have no idea ? Is this some sort of joke ?
by theBull
How much do you think GOOG will be down tomorrow, January 22nd 2008 ?
a) down $1-$5 per share
b) down $5-$10 per share
c) down $10-$15 per share
d) down $15-$20 per share
e) GOOG will be up tomorrow
You know GOOG is going under $600 tomorrow, after hours trading data from NASDAQ has it at $598
Down !!! Down !!! Down !! Maybe it will hit $550 this week !!!!!!
by stock market ticker
[…] GOOG Drops 5% - Google Shareholders Taking a Beating […]
by cook
Looks like another day Google is down. Even after the fed announcements today, it’s still dropping. I think I’m going to cut my losses and bail out now before it goes down any further. I’m hearing too much talk of it dropping below $500 in the next month.
by theBull
ding ding, that’s the sound of the closing bell for Tuesday !! Let’s see, GOOG is down 15.90 a share or 2.65% and it could have been worse, it was down as low as $560 today. Let’s forecast for tomorrow, because we all know the rate cut today eased the market losses. Tomorrow will be the bloodbath. I predict GOOG dips under $550 tomorrow and also that it will drop under $500 within a month.
Gotta love those short positions especially when all the freaks at the Googleplex are crying their hippie eyes out
by theBull
hahahaha, I was right as always, looks like GOOG is headed for $550 today !! Biggest loser stock of all time = GOOG !!!
by Anna Richard
Google is a strong company. They’re only dropping in price because everyone else is (global recession).