Diorex

I have had some change of heart on my Google Buy Reccomendation post and realized a small loss in getting out of my position - taking a loss is always better than thinking you will hold on until break even and is a hallmark of the difference between a professional and amateur trader - “your first loss is your best loss” is how traders talk about it.

Anyway, the reason for the change of heart are several:

• The prospect for an increased multiple is based on the growth of the company. How much growth is left for Google? They have utterly failed in creating any significant revenue stream other than Adwords and Adsense. YouTube is still up for debate and will probably work for them, but pretty much every other acquisition or new pursuit has sucked time and energy away from the core focus and failed to generate new revenues.
• Their acquisition strategy is haphazard at best - I dare anyone to see a pattern in what they have purchased - it is all over the board.
• Search is a pull technology - it is dificult to compel users to search more, sure the laser targetted ads have great rates, but is anyone in a developed country with internet access not aware of Google?
• Advertisers - 2 of the biggest online advertising verticals, Mortgage and Auto, are in the dumps. They are fighting for their very survival and are probably not seeking out new ways to spend money on Google (or anywhere else).
• Advertising Rates for search are up dramatically for roughly the same impression volumes as 3 years ago for us. No more or less people searching, but I have to pay significantly more for those clicks. This has drained the ROI from advertisers and made search yet another advertising tool rather than “The Tool”
• With lower ROI’s and limited reach combined with overall advertising slow down - other avenues like TV and direct mail are starting to look more attractive as those rates plummet - as they get cheaper and search gets more expensive I am strongly considering shifting some budget - even at a higher acquisition cost my reach is much higher - remember profit is volume X profit per sale, you can make less per sale and make it up in volume.
• For the first time, I am not in a buy all of it I can get position with Google - I now have other places to spend the money that get better returns on similar volumes - not really reducing my budget at Google, but not growing it either.
• Google’s arrogance - I have yet to meet a single Googler who really understands their system. Almost anyone reading this blog is smarter on Google’s advertising system than even the smartest Google employees. I would love to see comments with people saying - “No, google has made me lots of money with their on point and insightful reccomendations on how to better use their system.”
• Google’s over confidence - Here is a company that pretty much feels entitled to search. For 3 years, direct marketers who did not work with Google were not very good direct marketers. An entire industry was forced to work with them and has had collectively horrible experience with them - I dont know a single person using Google who would not like to have Google be a smaller piece of their business. That will bite them at some point when the next great thing comes along. I know guys who have far surpassed their Google spends in almost no time with Facebook and MySpace - whats next?
• Google has an employee problem - Google has tons of engineers who are the heart of the company who have either made tons of money or who are way under water, this disparity in wealth will be a growing problem. Why work at Google for below market wages when I can go to a start-up make about the same money and actually have a shot at being rich - the most talented are being woo’ed away every day.

I am not saying I would short Google, just realized after I made my trade a week or so ago that I did not like it. Dug into that intuition and saw a lot of things that did not mesh with my original analysis so I got out.

This entry was posted on Thursday, December 4th, 2008 at 11:44 am and is filed under Google. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.