Stinkeye Aggressive Growth Fund

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Anybody got the marbles to short GOOG here....you might after you read this....

Yahoo Staffer Predicts Google Fall David A. Utter
Staff Writer - Published: 2006-01-23
http://www.webpronews.com/topnews/topnews/wpn-60-20060123YahooStafferPredictsGoogleFall.html

One diviner of the inscrutable GOOG has peered out from the Yahoo enclave in Sunnyvale and forecast a dire fourth quarter earnings report from Google.

It's all in the search advertising details, we find out from Yahoo senior software engineer Amr Awadallah, cited by SiliconBeat's Matt Marshall in his recent post. Awadallah thinks Google has given away some signals that indicate a lackluster earnings announcement will be delivered by Eric Schmidt and company on January 31st.

Awadallah picked up on a few indicators he thinks bode poorly for Google. First he detailed how changes in the third quarter delivered booming numbers for Google. He listed those changes as Google adding three sponsored links about certain search results, increasing top of the page coverage significantly, and variable term pricing in AdWords, where minimum max-bids for keywords were set "on a per-term basis, rather than a flat" 5 cent minimum.

He then ticked off four factors that could contribute to a fourth quarter report that misses analyst expectations: Yahoo Publisher Network's emergence from beta; Google's capital spending excesses, nearly double those of Yahoo; hiring at a faster pace (Awadallah suggests Google is hiring lower quality applicants, too); and an increase in Google's cost of revenues through 2005 that diminished its operating margin slightly.

"In summary, if you have been thinking about selling/shorting google, now might be a very opportune time," he wrote.

Google recovered a bit from Friday's selloff, when news of a Department of Justice subpoena against Google spurred a number of investors to dump their stock and send prices below $400 per share. The 8.5 percent drop turned into a 7 percent gain on Monday, with a close of $427.50.

Given Wall Street's swift punishment of Yahoo and Intel for delivering financials out of line with market expectations, Google could face a brutal Wednesday morning on February 1 if it doesn't delight investors with its figures.

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Google will miss 2005-Q4 quarter revenue estimates.
Posted in Category: Work — amr @ 8:52 pm
http://www.awadallah.com/blog/?p=19

That is my prediction. For some history, read my previous blog posting about how Google increased the monetization of their SERP in Q3 by:

(1) adding up to 3-north-listings (above algo results),

(2) increasing north coverage significantly, and

(3) Variable-Term-Pricing (setting min max-bids on a per-term basis, rather than a flat $0.05 min).

These changes led Google to a very strong Q3 where they showed a sequential growth of 14% over Q2 of 2005, a very strong increase for a typically slow summer quarter. That, however, sets the standard very high for Q4 of 2005, hence my prediction that they will miss the wallstreet estimates for Q4 sequential growth. I monitored their UI closely in Q4 and did not see any significant monetization changes to boost Q4 ala what happened with Q3.

In fact, Google admitted that fact in an Nov 2005 SEC filing which stated: “seasonal trends in the third quarters of 2005 and 2004 may have been disguised by certain monetization improvements to our advertising programs,”

That said, there is many other reasons to sell GOOG, for example:

1. YPN will be hitting the Adsense program hard in 2006 once it’s out of beta. The adsense program is indeed starting to slow already, the google network revenue grew by 7% sequentially in Q3-2005 as opposed to 20% for google site.

2. Google is going nuts with capital spending (it spent almost twice what Yahoo spent)

3. Google is also hiring like nuts, 800+ people in Q3, on top of 700+ people in Q2 (i.e. a 1/3 of Google’s work force joined in these two quarter). There is two downsides to this: (a) they are hiring lower quality folks (we interview same folks and see who they pick), (ii) they are hiring like yahoo was in 1999/2000, i.e. hiring today expecting that more revenue will come later, that is not always true (as yahoo learned the hard way and laid off a ton of folks in period 2001-2003).

4. Google has been growing the cost of revenues much faster than revenue, in fact their operating margin fell from 35.2% in Q1 of 2005 to 33.5% in Q3

In summary, if you have been thinking about selling/shorting google, now might be a very opportune time. I will symbolically short 1 share of Google tomorrow

– amr

update: A colleague of mine reminded me that Google did a SERP UI change in early December, they increased the font-size for the East adword listings (i.e. listings on the right rail of the page). We call this type of change an “accelerator change” which is usually done to try and catch up with revenue projections, its another signal that Google’s Q4 quarter is a bit in trouble. Note that they launched this change after the peak of xmas shopping.

update: As promossied (sic) I did short Google on the morning of Jan 13, 2005. I actually shorted 10 shares at $465.

Wall Street is buying the Google Growth Lie.
Posted in Category: Work — amr @ 8:30 pm
http://www.awadallah.com/blog/?p=10

The revenue increase Google saw yesterday is not natural growth, and frankly I am totally surprised at how Wall Street re-acted. I am even more puzzled that Eric Schmidt said that he also was surprised at how well Google did in this typically slow advertising quarter.

Well, I know, and he knows, that the revenue increase is primarily due to two things that Google launched in Q3:

1. Three sponsored results above the web results (instead of their historical 2). I blogged about this here:

http://blog.360.yahoo.com/blog-zwwMZhwwdrSyXD8-?p=121


2. Variable-Term-Pricing (VTP). This is a very evil (but clever) change that Google made last Quarter. Instead of letting keyword pricing be a free market and allow the bidders to decide the CPCs, they now are pricing their inventory, and enforcing a minimum-bid to participate in the market for each individual keyword (if you do not pay that minimum, they will not even show your ad). You can read about that one here:

http://www.pbs.org/cringely/pulpit/pulpit20050922.html

Specially the quote:

“It’s like Vegas,” said my friend. “They want you to lose. Try to game the system and they cut off one of your legs.”

That said, unless Google launches any new tricks in Q4 (and I did not see any yet), I expect their Q4 growth to be inline with the overall market (i.e. more natural than super-natural). For now, let them celebrate, but come January, I predict a big disappointment (unless they launch any new tricks, e.g. show sponsored ads at bottom of results page, show up to 4 ads above the web-results, increase the min-bids for keywords, etc)
– amr