A guy I had lunch with on Friday told me he bought Google at $475.
“I’m a moron,” he said. “Please, don’t put my name in your column.”
We all make mistakes. But this guy said he’d be too “embarrassed” to be exposed as such a “loser.”
He put more than $4,000 in Google stock, which hit a high of $475.11 on Jan. 11. The stock fell Tuesday, Wednesday and Thursday, and it was plummeting again as we ate on Friday.
The shares closed at $381.55, down $14.49, or 3.7 percent.
From its peak, Google’s market value has plunged by roughly $28 billion. That’s about equal to the market value of General Motors, $13 billion, and Ford, $15 billion.
The guy I had lunch with, meanwhile, is down only $800. And he says he’s not selling his stock for a loss now.
Try as I might to protect his identity, there is one person who may read this column and instantly recognize him.
That would be his wife. And if you are reading this, please allow me to explain a few things before you clobber him:
I have known your husband since 1996. He has worked in financial services for many years and is otherwise a highly intelligent and thoughtful businessman.
On Monday, Google reported an 86 percent increase in its quarterly revenue and an 82 percent jump in earnings. Ordinarily, this would be extraordinary. But Wall Street analysts were expecting more.
Since Google had its initial public stock offering in August 2004, analysts have had a hard time predicting Google’s earnings. Until recently, their best guesses have been way too low.
In Google’s first five quarters, the company beat analysts’ expectations for earnings per share by 15 cents, 15 cents, 37 cents, 15 cents and 14 cents. But in the last quarter, Google surprised analysts by reporting earnings that were 22 cents lower than expected – an unheard-of gap.
I’m not sure what earnings have to do with Google’s valuation. The stock trades on momentum. But when news broke that Google missed its earnings target, investors began gagging on Google.
Until then, Google had had a great run.
“It’s the latest hype,” said Jeff Wilson of Aurora’s Wilson Advisory Group, a conservative investor. “All the big brokerage firms are coming out with values of $500 or $600 (per share). Remember how well they guided us in the ’90s?”
Some analysts have even predicted that Google stock will hit $2,000. The hyperbole continues amid the decline. Of the 38 analysts covering Google, 29 still recommend that clients buy the stock.
Google has tried to avoid Wall Street’s games by refusing to give analysts guidance on earnings targets. Nevertheless, one of Google’s cheerleaders has been Mary Meeker of Morgan Stanley Dean Witter, who famously misguided investors during the Internet bubble.
In her latest report, Meeker chides Google for not helping analysts with their earnings forecasts. That, she says, contributed to the recent gaffe.
“Google has become like Barry Bonds when it comes to communicating with Wall Street,” she wrote, “In spite of the fact that Bonds has been one of the greatest hitters/players in the history of baseball, often times the fans have dissed him because of his attitude. Bottom line, success comes with responsibility. The good news is that we think Google presents long-term investors with compelling opportunity.”
Until Google stumbled, RBC Dain Rauscher analyst Jordan Rohan put a $500- per-share price target on it. On Wednesday, he lowered that target to $435, but he still rates the stock “outperform.”‘
“It isn’t the end of the world,” he wrote. “The company is still gaining market share in a fast growing market.”
Indeed, Google has potential for growth. But investors and analysts have grossly overvalued that potential.
Even after the latest tumble, Google has a trailing price-to-earnings ratio of 68. Competitor Yahoo is at 57. But Microsoft is at 21, and the Standard & Poor’s 500 Index is at 18.
So, dear wife of anonymous Google investor, the good news is that the band of analysts plays on. That means somebody may buy your husband’s stock for $475.
That may take a while. But, in the meantime, try to go easy on him.
Al Lewis’ column appears Sunday, Tuesday and Friday. Respond to Lewis at , 303-820-1967, or alewis@denverpost.com.
