I’ve been trading in and out of google $goog, the market has been good and I’ve made some handsome profits. However, the continued strength in Google has me thinking that a big move is coming. I don’t usually make a play on earnings but I am contemplating buying November calls (or Oct calls if aggressive) before their 3rd quarter earnings to be released after market on Thursday 14th October. Read on if this interests you.
1) Forex gains. Google has a great forex hedging program that made them 70+ million last quarter. In addition to that, the US dollar has been falling steadily this quarter and Google gets over half of their revenue from outside the US. Therefore, overseas earnings will be boosted when converted in to US dollars
2) ANDROID. I am a strong believer in their mobile ANDROID operating system. They are gaining market share from both $RIMM and $AAPL. In the last quarter, they stated that they were adding over 160K ANDRIOD users a day, a new user every two seconds. Although they don’t make money from ANDROID directly (it is free open source) there are many indirect ways to make money. Their Apps store (where google takes 30%), mobile search click throughs and future music store and book store revenue. See here for more info
3) The new Google platform as outlined in their last earnings call has many new features such as real-time search and up to 50% faster search results keeps them in the forefront of search engines from competition
4) Youtube display ADs are gaining steam and with their dominant position as the go-to online video site, it is the ebay equivalent of the online market place. More viewers, more videos, more videos, more viewers. The couple billion they paid for Youtube is looking like money well paid
5) During the worst of the economic downturn in the US and Europe, they maintained steady revenue growth (despite at a slower rate). If one believes we are coming out of recession, revenues should only increase, assuming all else being constant
6) The last few quarters, Google share price has been hit every time after earnings due to high analyst expectations. The expectations on Google have come down since then
7) Now that Google has settled somewhat with the Chinese government regarding censorship issues and have their license renewed. They have resumed hiring in China and back on track with their China strategy. Any sign of them gaining back market share from $bidu would be a huge boost to investor confidence. P/E ratio of $bidu is 103 VS only 23 for $goog. Imagine even if a little of that $bidu investor expectation transfers back to $goog
8 ) $bidu nor any of the other Chinese search engine have a competitor to ANDROID in China and mobile search continues to become a larger share of total search. China as it is in US and Europe
9) Perhaps a bit subjective, but I believe Google has gained much user respect from the Chinese web user population despite losing in the censorship argument with Beijing
10) In China, the more affluent educated web users have always choosen Google over Bidu. One can argue the revenue from these users are higher and more valuable
Google together with Apple, Bidu and Amazon are what I consider to be the four horsemen of Big cap Technology (Research in Motion is no longer a horsemen, ponymen maybe). Google I consider to have the highest chance to power higher. Apple and Amazon are priced for perfection and so is Bidu with the highest P/E of them all.
Apple P/E 22
Amazon P/E 64
Bidu P/E 103
Google P/E 23
Technically, I believe Google will need a good earnings to rise out of the descending trendline dating back to January 4th of 629.5. From now until then, it will likely be chopping between the trendline and the supports below before earnings.
Support levels are approx 519 and then 510. I like that it has stayed above the 200 day MA and that the 20 day MA looks to cross above the 200 day MA soon. The worst case scenario are the support levels at the circled 50 day MA and 100 day MA at 491 and 485.
If Google does have a good earnings, it could be a quick ride to 600.
1) Mobile credit-card click throughs are still low as users are reluctant to pay for various web services through their mobile phones
2) Any negative news out of China. Such as revoking of their license, inability to gain back market share and other various problems with the authorities
3) Possible lower revenue from their dominant US and Europe markets due to slow economic recovery
4) Continued battle with Apple Iphone and Ipad platforms, should Apple gain back momentum over ANDROID
5) Youtube still censored in China while competitors gain a stronger foothold
6) According to the latest from alexa.com, Google properties in China (Google HK, Google COM and Google CN) are only ranked 5, 8 and 15 respectively for web traffic in China
7) Windows Live search/Bing and yahoo fighting for market share from behind
8 ) In China, mulitiple competitors are cutting up the web user pie and each gaining a fair audience, perhaps regional preferences in China (Sina, Sohu, Soso, Sogou)
9) A significant number of insider selling has occured in September and October. Perhaps the biggest red flag to me. Source yahoo.
So quite a few things to consider and ponder about. Thanks for reading. You can follow me on twitter or stocktwits where I will tweet should I enter the trade.