Greed is GOOG
I have never believed that buying a stock for more than 2-digits dollars is ever worth the money. No, it’ll never will. Investment is never a good one if it’s too expensive, unless of course you’re more of a cheeky speculator than a wise investor. Or maybe you’re a true oracle who can predict the future, hence eliminating your dependency to those blood-sucking analysts. Or maybe you’re just a happy-go-lucky who wants to cash in the stocks, for more than you paid for, to the equally ignorant and gullible guys next door. Then, it’s a different story.
Another odd says that people never learned from history, or history tends to repeat itself. Or something like that. If you call yourself a savvy investor, you must have heard about a company which was once touted as worth more than Boeing, with their flamboyant CEO in the name of “Naveen Jain”. Or haven’t you? It’s Infospace, rings a bell now? To summarize the tragedy: insiders were cashing out millions, and faithful investors were left with pennies. Stock worth $1000 in March 2000 was worth only $2.67 by June 2002. Microsoft’s Paul Allen lost an estimated $400 million and Bev Hess, 65, saw her $40,000 retirement saving shrink to $1,450 when InfoSpace shares collapsed. Once worth more than Boeing fell to the value of two Boeing 777s, as reported by The Seattle Times.
But what’s the typical indication that a company is not doing so great? It’s when the insiders cash-in or dump their stocks. According to Seattle Times, InfoSpace insiders sold $158 million in stocks from May to July 2000. InfoSpace executives (including Jain) even quit the company in quick succession to sell their holdings. If you don’t know why they quit, read this Joel Spolsky’s post about measurement dysfunctions:
Fortune 500 CEOs are usually compensated with base salary plus stock options. The stock options are often worth tens or hundreds of millions of dollars, which makes the base pay almost inconsequential. As a result CEOs do everything they can to inflate the price of the stock, even if it comes at the cost of bankrupting or ruining the company (as we’re seeing again and again in the headlines this month.) They’ll do this even if the stock only goes up temporarily, and then sell at the peak. Compensation committees are slow to respond, but their latest brilliant idea is to require the executive to hold the stock until they leave the company. Terrific. Now the incentive is to inflate the price of the stock temporarily and then quit. You can’t win, again.
This sneaky conduct usually go unnoticed by public until the damages has been done and it’s already too late to do anything. Media coverage is usually very minimal until SEC investigation kicks-in. Obviously, company never called press-conference to announce their executives dumping their stocks. Analysts and journalists these days are also likely investors, so even if they know, they won’t do anything and they would “kill” to protect their own interests. It’s because publicity like this would trigger public panic sell and shares will free-fall within a matter of seconds.
People who like to do number cruching and personal analysis have probably noticed that InfoSpace wasn’t doing so great long before the downfall. But of course, not that many people out there actually pay attention to the numbers.
Okay, enough history. Now, let’s put the current Nasdaq sensation, Google (ticker symbol: GOOG), under the microscope. It has been a mystery that Google shares (symbolized as GOOG) are worth more than $300 apiece, especially for a company with no other obvious revenue source apart from the “AdSense”. Although the company is making tons of money with its advertising business, the discovery of click-fraud made it look shaky. And the problem is now aggravated with that $90 million dollars worth of click-fraud settlement. According to this vocal blogger, that settlement is for one company only, out of dozens who are suing Google for click-fraud. The press coverage surrounding this settlement did not specifically mention to whom the payout is intended.
By the way, that critical blogger seems to do a pretty good nitpicks on the Google hype, even though we don’t know whether it’s 100% accurate. But a critical thinking is the point here. Here’re some interesting information he mentioned:
- A month ago, Mark Cuban said on CNBC, that Google’s revenue stream is over 50% pure fraud: from automated clickbots to 20 cents/hour clickers in India and China. Hemm, so there’s really such profession as mouse clickers.
- Google’s CFO George Reyes comments at Merrill Lynch investor conference earlier this month sparked market panic and stocks dived rapidly. Couple of days later at Google Analyst Day, all was well as if nothing happened couple of days before. Reyes amended his statement by saying that Google’s business is exhibiting very strong fundamentals and growth potential, and of course, the analysts avoided anything that could potentially humiliate their host.
- I don’t know whether this is accurate: Goldman Sachs Asset Management and Jennison Associates have each dumped roughly 35 percent of their entire holdings of Google stock. Alliance Capital Management has sold 13 percent of their stake, and Wellington Management has unloaded 18 percent of their shares. And Eric Schmidt, the CEO of Google, sold over 100 million dollars of stock on February 22 this year. If it is, then you Google stockists are definitely in troubles! Better be cautious now than sorry later.
- What we know for sure is: Eric Schmidt is on selling spree. While it sounds not too bad for an executive who gets paid $1 in cash and tons of stocks annually, his impeccable timing is questionable. Could it be an insider trading case? Why would he cash-in the stocks if the future looks so bright? It’s definitely not for paying the bills, is it?
- In Time magazine interview, Eric Schmidt reportedly said “the company isn’t run for the long-term value of our shareholders but for the long-term value of our end users.” Well, sounds like the investors are screwed here. How can you deliver long-term value to end users without delivering long-term value to the shareholders at the same time? It just doesn’t make sense. Hang on, there’s also Google Desktop 3 that is said by some (including ZDNet) as nifty spy. Its Search Across Computers feature means Google stores an index copy of the information intended to be shared across computers, on their servers, up to 30 days. I’m not sure how that fits into long-term value of the end users strategy, because personal information and privacy is very expensive commodity these days.
This ex Google staff also put on the table some very nice facts why $300+ per share is probably too much. Google will never pay dividends, and even if you bought every single publicly traded share of Google stocks, Larry and Sergey would still control the company because their privately held stock has ten times as many votes. So what do the Google stockists look forward to? I don’t know, you tell me…
Despite all of this, Google is still a cool technology company, and their search engine is something most people can’t live without. This essay is not intended to defame Google, but to put things into perspective for speculators out there who thought that greed is still good these days.