Top 10 Reasons To Sell Google’s Stock

I Love Google, But Hate Google’s Stock. For what it’s worth (about nothing), I used to be a stockbroker. Would you believe I got out of it because I didn’t like ripping people off? (it’s true!)

Today I’m going to talk again about why, even though Google is a great company, their stock is overpriced and should be sold if your want to protect your portfolio’s value. Sure I said it before (when their stock was $80 higher per share), but this time I’m going to lay it out in even more detail. Hopefully this won’t be the straw that breaks the Googlebots back and gets my site banned.

10. Google is a 1 dimensional company. Although they are try to branch into everything even remotely related to advertising, software and the Internet, they have only been successful with 1 product: search. Sure people talk about Gmail (less than 5% market share), Myspace Brazil Orkut, Google Reader (what’s that?), and Ebay and Craigslist are soooooo Dead Google Base, but Google is really only making money with one product: search.

9. Market Cap vs Profitability. Right now, Google’s Market Cap is $104 billion dollars. The highest market Caps for any Company has never been more than $650 billion. Right now GE and XOM are the top dogs: both around $360B; WMT is at $185B; MSFT is $282B. Even if (for some reason) you think that Google will someday be worth more than Exxon Mobil is today, you’re still only looking at a 3 fold increase. Right now Google is making about $1.7B a year in profits, XOM $36.1B.

8. Search Query Revelancy is narrowing. Via Battelle’s Searchblog we see that not only is Google tied with Yahoo in terms of relevancy but (just as ominous) no search engine scored better than a 2.3 out of 5 for Relevancy.

7. There is no switching cost for search. I can use Google at 9:00 am Yahoo at 9:02 am and MSN at 9:03 am – without feeling any kind of switching pain. It’s just too easy for someone to choose another search engine – there is no “switching cost.” If you’ve every read Geoffrey Mores “The Gorilla Game,” you understand that without a high switching cost, no technology company can consider it’s business model safe.

6. Google’s Margins are shrinking. Straight out of SES we have Jensense pointing out how Google admits AdSense margins will be squeezed in 2006 and beyond. You don’t need captain obvious to tell you what shrinking margins mean to stock prices.

5. Microsoft. Are you really going to bet against a team that just doesn’t loose? I mean seriously? What is Google going to do when Microsoft intelligently integrates an Amazing search product into their operating system? It may not happen for a few years, but this is inevitable. What happens when Microsoft smartens up and realizes that the best way to improve search relevancy is to push ANY result with ANY Pay Per Click add down 10 places in their SERPs?

4. Risk vs. Reward. If you want to invest in risky stocks, that’s certainly your prerogative. But when you do, there should be a chance that you’ll hit a home run and see a 20 fold or more increase in your investment. With Google, you have all the risk of investing in a small company without the huge potential payoff.

3. “Search is in its Infancy.” Aside from MSFT and Yahoo, we see innovation coming from A9 and hundreds of upstarts. There could be a disruptive technology that revolutionize the way we search – it’s still anybody’s ball game and GOOG is priced as if they’ve already won.

2. Legal Concerns. Google is still priced as though everything will go perfectly for them for the next 5 years. With privacy concerns, copyright and other legal / government issues, there are still several legal pitfalls left for Google to avoid.

1. Clickfraud. “Make $300 per month Clicking on ads” has a lot of appeal to many people around the world. It’s why Google has already set aside $90 million to settle clickfraud cases (via TW).

The adult space is always on the cutting edge in terms of Internet technology. Wanna know why there’s almost no PPC in adult? Because years ago that industry figured out that PPC is not a sustainable model for advertising. Sure, some people buy clicks from Adsense in adult, but the real money is in Pay per Acquisition mixed in with some “pay for premier placement.”

There is a likelihood that the business model (PPC) that is the source of virtually ALL of Google’s revenue today will not exist in 10 years. Can Google make the switch to affiliate marketer if need be? Only time will tell.

I love Google. I love the people at Google, their spirit and how they innovate. I just don’t see how you can justify owning their stock at its current price. If their stock goes below $100, it will be time to take another look. But today, I can’t see why any informed investor would own GOOG.

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13 Responses to “Top 10 Reasons To Sell Google’s Stock”

  1. Top 10 Reasons to Dump Goog

    I believe (and I may be thought of as a kook for saying this) that PPC profits will decline as search engine algos and relevency improve. As the results get better, the likelyhood of people clicking on ads will go down. Perhaps that is incentive for…

  2. clay whittaker says:

    You have lots of posts telling advanced seo blackhats how to play the game. What if you’re a teenager hoping to get in on the industry? What do you do? Almost all information out there is wrong. Where should I start trying to read? Should I learn to code?

  3. Tomy Lorsch says:

    Hey i translated your excellent post at
    http://tomcaster.com/blog/2006/03/10/10-razones-para-vender-las-acciones-de-google/

    Whay do u mean exactly with “improve search relevancy is to push ANY result with ANY Pay Per Click add down 10 places in their SERPs?”

  4. […] SEO Black Hat acaba de publicar un excelente post. Aunque no coincida con todo, aqui va la traducción: 10. Google es una compania de una sola dimensión. Pese al intento de diversificarse incluso a sectores alejados de la puclicidad, software e internet, al día de hoy solo han sido excitosos con un producto: search. Claro que la gente habla de Gmail (menos de 5% del mercado), MySpace Brazil Orkut, Google Reader (qué es eso?) e eBay y Craiglist que están tan muertos Google Base, pero Google realmente solo esta ganando dinero de un solo producto: search. […]

  5. 10 Reasons to Sell Google Stock

    Google is on the target of many people (I guess that includes myself as well), it might be this tremendous growth, the young kids getting rich, or the “do no evil” policy. Others just hate because they did not buy Google stock on time&#8230…

  6. […] Sell Google Stock – some provocative thoughts. GOOG good for a short? Too risky one way or the other for me. […]

  7. Friendly Wager, I’m willing to bet GOOG goes up 30-40 dollars before the year ends and keeps climbing.

  8. Klaus says:

    All true, but I’ll buy Goog again soon. Market is moved by sentiment and Goog is the hottest new tech around. They (traders not investors) don’t believe in Google inc. the believe in GOOG bubble. You should know better if indeed you were a MM once.

  9. Clay Whittaker, trial and error is the teacher of the greatest masters in the game.

  10. Hawaii SEO says:

    Dooh!
    I’m glad I didn’t take your advice about selling my Google stock. About two weeks after you posted this… Google was included in the S&P 500 Index!

    S&P 500 fund managers will have to buy $11.1 billion of Google’s stock because of its inclusion in the index, according to an estimate by Nicholas Gulden, an analyst at Citigroup Inc.
    http://www.bloomberg.com/apps/news?pid=10000103&sid=aq_H2BEIXQCg&refer=us

    You would probably assume that a guy like you who “used to be a stock broker” would have seen this coming.

    Oh well… Hindsight is 20/20.

    Aloha,
    Dave.

  11. I have profited greatly since your post Q! Looks like I’m up.

  12. […] No matter how you slice it, GOOG posted incredible earnings numbers. 70% YoY revenue growth is astounding – especially for a company that size. Since my top ten reasons to sell Google stock, the price has shot up almost 41%. […]

  13. […] This comes from a rare occurrence – me agreeing with a post at I Hate Google.org. I do not hate Google – and, to be frank, I usually seriously disagree with the author on most points. However, his responses to this anti-Google stock post are quite sensible. […]