A Google Buying Opportunity?

The NYTimes is reporting that Google is losing altitude as their “clicks go flat”. Investors nailed the stock 4.6 percent yesterday on word that ComScore thinks that Google’s click throughs on ads were flat between January 2007 and January 2008. Two analysts are quoted in the article as saying that Google’s problems are self-inflicted (or at least half self-inflicted). From the article:

Mr. Cleland said the most recent quarter, when Google’s revenue grew at 51 percent while profit rose only 17 percent, was the latest sign that the company was overspending. “If they cut their spending a little, so that they could start gaining earnings momentum again, their stock valuation would return,” he said.

Could it be that Google isn’t concerned about near term earnings momentum? Perhaps they’re investing in the long term growth of the business? For example, joining up with a group spending $300 million on a new undersea cable. It’s likely that they’re also spending to come up with new applications that will ultimately diversify their revenue. Check this out:

“I think at least half of it is self-inflicted,” said Jordan Rohan, an analyst with RBC Capital Markets. Mr. Rohan noted that Google has reduced the clickable area in text ads to avoid accidental clicks, which earn it revenue but are of little value to advertisers.

Does the quote really go with the “noted” part? This quote from the article makes it sound like improving ad click quality is bad for Google’s bottom line. Maybe for the near-term, but…

“Google has had this history of making major changes to the platform that have had terrific impact on monetization,” Ms. Wolk said. “Given the track record, we will give them the benefit of the doubt.”

Indeed. When Google was at its peak of nearly $750 per share, I definitely thought it was overvalued. At today’s price, GOOG has a P/E of about 35. Though that’s double the historical average, Google is still a fast grower and I think they still have more tricks up their sleeves. Where the rest of the market seems concerned about short term results, GOOG starts to look better as a long term stock. This is part of the reason that Google does not give earnings forecasts.

Google, wireless and core competencies

Apparently, Google is readying a bid for wireless spectrum. They’ve got the cash to buy the spectrum, but the analysts say that they must get a carrier partner:

“Wireless spectrum and network management are nowhere near Google’s core competency. Its competence is in one market, online advertising,” said Emma Mohr McClune, principal analyst with Current Analysis.

To me, this is confusing Google’s revenue model with the things it is competent to do. Certainly, Google has proven itself quite competent in the online advertising space, and it generates gobs of revenue from there. But I can think of something else they are capable of: running a large-scale, wide-area TCP/IP network.

Google has no experience running a traditional landline or cellular phone network. The thingsis that no one wants a traditional network. They’re all trying to move to IP-based networks. Hey, and Google knows how to run one of those. Remember those rumors of Google buying up dark fiber? If that’s true, I’m inclined to think that Google is seriously considering owning a good chunk of infrastructure to provide services as it sees fit.

One thing in the original article that I linked to that does ring true: Google enjoys gigantic profit margins on its current services. Unless they have some extremely non-traditional ideas up their sleeves, competing with traditional carriers is a very low margin business. It’s going to be interesting to watch where this goes.

Maybe their real plan is just to bid up the spectrum a bit to put a squeeze on the carriers for the fun of it.

Not fair! Apple releases Final Cut Express 4

On Tuesday, I ordered Final Cut Express 3.5 with overnight shipping because I had some screencast work to do. I got it yesterday and installed it. Today, Apple released Final Cut Express 4. They’ve lowered the list price to $199 from $299 (luckily, I paid about $230). I don’t so much care about that part… what I do care about is that I don’t want to have to pay $100 to upgrade to FCE4, when I just yesterday paid more than the new price for the product.

Yes, yes, new products come out, technology changes, yadda yadda. Remember the iPhone price drop that people were complaining about? If you bought an iPhone within 14 days of that price drop, you got that money back. If you bought a computer within a few weeks of Leopard’s release, you could get Leopard for $10.

I have no problem with paying $10 to cover the media cost for FCE4. Unfortunately, the Apple customer service rep said there was no such deal, and that my only recourse was to try to return FCE 3.5 to the reseller I bought it from. I called them, but what could they do? They can’t take opened software back! I’m going to try the time-tested technique of calling Apple again and talking to a different rep.

Dear lazyweb: if you happen to know of an Apple policy about this, please post a comment here. Thanks.

Seth Godin in Ann Arbor Michigan – May 22nd

Check it out: Seth Godin in Ann Arbor Michigan – May 22nd. This is what I like about Ann Arbor. It’s a relatively small city, but it is disproportionately active for its size. There are a lot of interesting technology, business and arts things that go on here.

If you’re interested in marketing and not familiar with Seth’s work, you should really check out his blog.

Guy Kawasaki and Seth Godin: Together At Last

One a-list business blogger interviewing another: Signum sine tinnitu–by Guy Kawasaki: Ten Questions with Seth Godin
I like reading Seth’s thoughts, even if he does keep beating the same drum (hey! he actually believes in what he writes!). I did enjoy Seth’s answer about what makes him successful:

If we define success as the ability to make a living doing what I do, I’d say the following:

1. No ulterior motive. I rarely do A as a calculated tactic to get B. I do A because I believe in A, or it excites me or it’s the right thing to do. That’s it. No secret agendas.
2. I don’t think my audience owes me anything. It’s always their turn.
3. I’m in a hurry to make mistakes and get feedback and get that next idea out there. I’m not in a hurry, at all, to finish the “bigger� project, to get to the finish line.
4. I do things where I actually think I’m right, as opposed to where I think succeeding will make me successful. When you think you’re right, it’s more fun and your passion shows through.
5. I’ve tried to pare down my day so that the stuff I actually do is pretty well leveraged. That, and I show up. Showing up is underrated.

eBay to Acquire Skype for $2.6 billion

Skype had 2004 revenue of $7 million, and projects 2005 revenue of $60 million. Not earnings, but revenue… this makes the $2.6 billion that eBay is paying to acquire Skype quite remarkable. Skype does have powerful network effects going, though, and they will not prove easy to dethrone. Just like eBay. I’m sure that’s where the attraction is, but the purchase amount just boggles the mind.

One thing I forgot to mention initially when I put this post up: eBay is paying $1.3 billion in cash. This isn’t the stock-for-stock hocus pocus that went on in the late ’90s. The people who funded Skype get to walk away with real euros the day the transaction closes.

There must be something there, though. After all, Blazing Things’ phone number comes from Skype In.

Perspective: Being Poor

John Scalzi provides an excellent perspective piece on Whatever: Being Poor. Something to consider, though: this is being poor in America. If you’re talking about poor in India, China, Africa or almost anywhere else in the third world, you can downgrade just about every one of these even further. Seriously, if you think “Being Poor” sounds depressing as written (and it likely does, for those of us reading and writing blogs), just transplant your brain to Africa as you read.

Being poor is not having a TV. Or a phone. Or electricity.

Being poor is walking miles to the market or to school, because there is no car.

Being poor is rocks and sticks for toys.

Being poor is thinking $1 an hour is a really good deal.

I’m not writing this to belittle the poor in the US. It is rough to be poor anywhere, and those of us above the poverty line are blessed. I just wanted to add to John’s excellent post a bit about just how good we have it here in the developed world.

Fool.com: Behind the Bubble Babble

Do you remember all of the analysts talking about the wide open skies for internet stocks and the “new economy”? The Fool is trashing the folks who claim there’s no housing bubble in the enjoyably titled Behind the Bubble Babble:

The very people most vehement about denying a housing bubble are precisely the people who have the most to gain from seeing one continue: mortgage sellers and realtors.

It always pays to look at where a quote or story is coming from. I liked this part:

Last time I checked, my paycheck was not contingent upon urging all of you to watch out for risky loans.

Actually, in a roundabout way, his paycheck does hinge on that… and providing other sound financial advice.

That’s what’s great about the Fool. Their articles cut through the hype in financial markets to try to give you a clearer picture of how things look.

A clear sign that manufacturers are counting on not paying rebates

This is the most egregious example of why manufacturers use rebates that I’ve ever seen. Outpost has a 120GB hard drive for the insanely low price of $20. Even the regular price of $80 is pretty good, but $20 is just nuts. Even if Outpost runs on super skimpy margins, you’ve got to assume that their gross margin on this will be at least $10 of the $80 price. So, counting the rebates, Western Digital would be getting $10 for this hard drive.

But, the rebates are the trick here. There are two of them, each for $30. What’s unique about this deal is that both rebate forms look exactly the same and are mailed to the same place. The only difference between the forms is that one of them specifies that you send the original UPC, the other specifies that you send a copy. Clearly, WD is planning on:

* some portion of customers will not send in either rebate, or will mess up the paperwork in some way
* some will send in only one rebate, or mess up the paperwork on one
* a small percentage will get through unscathed

At $10 a drive, including shipping to Outpost, I’m sure that WD is losing money. At $40 (my assumed Outpost cost of $10 + one $30 rebate), perhaps they’re breaking even or making a little profit. It would be interesting to know what the statistics are here… how many people do get the whole $60 back?

As long as the companies giving out rebates are not being fraudulent and “losing” rebate forms, rebates are a fine, if annoying, way to get really good deals for people who are diligent about sending in their forms. I just have serious concerns about how willing these companies really are to take a loss like this without gaming the system as much as they can.