Google missed by 9 cents!
Oh my gosh, a 9-cent miss – quick Tina, get to the store and load up on the beans and buckshot and I'll try to hold down the fort… Without that 9 cents, I'm very concerned that Google won't hit their 2008 EPS goal of $20.14. I mean they beat last Q by 31 cents and the stock gapped up $80 and rose quickly to $602 but now that they've missed this Q by 9 cents (despite the fact that the $4.63 they did earn is .10 MORE then the $4.53 they earned last Q) I guess our whole premise for liking GOOG is just shot to hell.
- Revenues were $5.37Bn, up just 39% from last year, when the stock was at $550 in early July and rose to $725 in October (after falling to $500 on that "disappointment.")
- Operating income was $1.58Bn, only 29% better than last year.
- Revenues on Google-owned sites were $3.5Bn, up 42% from last year and up 4% from last Q (when we gapped up $80)
- Revenues on Partner sites were $1.66Bn, up 22% from last year but DOWN 2% from last Q. Ah ha! There it is!
- Cash flow for Q2 was only $1.77Bn, down $10,000,000 from the $1.78Bn that gapped them up $80 3 months ago.
So you can certainly see why $16Bn worth of market cap was hacked off this company in after hours trading. I mean, if you are only going to make $1.5Bn a quarter, what's the point? At this rate, Google could perhaps earn as little as $19.80 per share in '08, that would be a p/e of 26 for a company that's growing 30% a year. Average p/e for the Internet Information Providers sector is 30 and 30 x $18 a share is $540 so another 10% knocked off earnings and they are still way undervalued at $500.
That makes it pretty easy for me to hit the BUYBUYBUY button on GOOG tomorrow. We'll have to play it by ear but I'll generally be looking to take out callers and will resist all but token coverage into the weekend as the only difference between this quarter and last quarter is that this quarter calls outnumbered puts by a wide margin and last quarter, Google was heavily shorted.
I'm going to be taking a gamble on whatever contract I can buy for $1 at the open, maybe the $520s and I'll also be grabbing whatever August calls are $10. We have our two butterfly plays and we'll have to see what the best adjustment will be but we'll probably move our longer puts into a vertical anticipating a rebound. This is going to be a lot of fun but I am worried that the Aug premiums will not deflate as fast as we'd like as, obviously, a move like this increases the implied volatility of the contracts.
Of course, we're going to take the opportunity to roll down our calls. Spending $5 to gain $10 in position in a stock you believe in is one of the great gifts of the option market so when you are $40 out of the money and need to spend $15 to roll down to be in the money, realize that you are spending $15 to buy $40 in position and, if GOOG goes up $40, that will become a 166% return on your investment. Also, rolling down allows you to get in position to sell calls to someone else, so you can get most of that money back very quickly by taking on a caller.
If you are in August, look to roll down to September and if in September, look to go to December and if you are in December, you're probably fine just rolling down as you have October earnings ahead of you and 4 months to sell premiums.
This is also a great opportunity to take out our AAPL callers as Apple is down in sympathy with Google even though the two companies have virtually nothing in common other than being big name tech companies. Of course, Google search is the default on the new 3G IPhones and Apple is giving GOOG 10M more possible customers this year. And let's not forget that GOOG just took over YHOO's ad network (leaving Yahoo doing I don't know what) and they have yet to monetize YouTube, which is getting upwards of 100M hits a day.
Long and strong on GOOG is my general plan…
I suppose some other stuff happened today, IBM was good, MER was bad but not bad enough to justify their discount price. MSFT missed but we know that company is run by the second-worst chief executive in the country (hey, maybe Bush does have a future ahead of him) and anyone who has seen (or remembers) the Zune did not expect them to beat. ZION missed but not enought to bother anyone and COF also missed and no one seems to care. This represents a MAJOR change of attitude from last week!
Of course, it's all up to C and all up to oil to stay below $132.50 and we can be happy, happy campers for expiration day.
