Analysts Go Googly Eyed.

Hey everyone,

As expected the stock market rallied yesterday. However, Google dropped from $452/share at open to 420/share at close - underperforming the Nasdaq by 6%. Actually, since the Nasdaq is weighted by market capitalization, Google's decline likely represented one of the reasons why the Dow Jones was up 2.6% while the Nasdaq was up only 0.6%.

Anyway, every business journalist, analyst, investment bank, and underground troll was trying to explain why Google was declining. Here are the reasons below (and why they are wrong) :

1) The dollar is getting stronger so Google makes less off its international business

- This is been happening for about 2 months now. You don't honestly believe that traders decided to make that their excuse to sell today, do you?

2) They are vulnerable to the consumer slowdown.

- Ummm....we've know that for awhile, the current Fannie and Freddie take over only make the consumer slowdown less likely to become a depression, so this isn't the reason.

3) Multiple Contraction - That is, people are speculating in it less because they don't think its going to have high growth - this is related in part to the consumer slowdown rationale above

- Multiple Contraction is really how financial journalists say, "We have no idea what is going on"

So what is the real reason why Google dropped today when everything else was rallying?

A press release from the association of national advertisers - an organization which represents a lot of big companies - Coca-Cola, Exxon, etc. - saying that it strongly opposes the Yahoo-Google advertising alliance

Its funny, yesterday on the ICM conference call, I was talking about how Google seems to be immune from prosecution from anti-trust because the product it offers is free to consumers. Google has somehow managed to look like a benevolent organization which offers all of its products free to consumers. I thought, unless businesses bind together and work against Google, this search company can have a defacto monopoly.

Now, Google needs to hire lobbyists. Lobbyists will make them look bad. Google and Apple have been able to maintain their clean image because they haven't gone to court over anything. While privacy issues have come about, Google has never really had to fight for marketshare in the courts. They've only use their engineering abilities to steal that from Yahoo. Now, when they start using legal efforts - they become "the man". This is bad press for Google. Perhaps they will be able to shrug off the critisim, but its not guaranteed. Even Apple and Steve Jobs were able to get out of the options back-dating issue relatively unscathed. But that's probably because no one understands what options backdating IS.

Everyone knows what a lobbyist is. Everyone knows what the word "Antitrust" means. When they get associated with Google....then Google becomes evil. Google becomes Goliath.

People pay a huge premium for Macs even though their functionality is no better than a PC. Sure they might have a shiny interface, but deep down, they are all the same. Google is much the same way. Maybe the search results are a little better, but in the grand scheme of things, you pretty much find what you want with Yahoo or MSN or Ask.com. But if you make Google look evil - the dedicated anti-"The man" fan base may start moving away.

That's why Google stock went down. Not "multiple contraction"

-Mansij Hans, E.I.T.
Member, Intigril Capital Management

Disclosure: Intigril Capital Management in long Microsoft at the time of publication of "Analysts Go Googly Eyed"