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If Google ad revenues are down 50%, how can Google be at $1200/share? Doesn't that make this a good short candidate? Nothing else Google has is profitable excep

If Google ad revenues are down 50%, how can Google be at $1200/share? Doesn't that make this a good short candidate? Nothing else Google has is profitable except for the ad business. The same goes for Facebook as well.

pheug 7y ago
They already dropped by 20% from peak. Are you saying they should drop by all 50%? That doesn't make sense. Market is forward looking. Assuming a fast recovery, a couple bad quarters would even hardly matter in the long term. You can model that mathematically using tools like DCF valuation. Another thing, Google has an exceptionally strong balance sheet and can weather this recession for many years if need be. They're not going bankrupt any time soon. You don't go and just short such companies when there's still plenty of leveraged junk out there.
crazygringo 7y ago
Because share prices are based on what people think Google will bring in over the next say 20 years, not the next 6 months. Everybody expects ad revenue to rebound fairly quickly once this is over. You don't expect COVID-19 to be cutting Google's revenue in half over the next 20 years, do you?
- ping_pong 7y ago
  The idea that share price is based on the next 20 years is truly laughable. The company themselves don't plan anything concrete more than 12 months out and anything further than that is guesswork. To think that you can project revenue even 3 years out is simply fictional (Source: my wife is in finance exec at a public tech company and one of her fields of expertise is FP&A). That said, analysts will make guesses based on financial projections and then give multiples to things like revenue or earnings, depending on the company. If a quarter of Google's revenues is impacted, it will have immediate effects. Of course, that's assuming that it's only a single quarter's revenue which in this case would be wrong. You're talking months of high unemployment globally.
  - crazygringo 7y ago
    > anything further than that is guesswork Well of course! Nobody knows what the future will be -- it's all best-educated guesses. That doesn't contradict my point. The stock price winds up being a kind of market-driven wisdom-of-crowds situation of a ton of different people's guesswork, mostly institutions with teams of researchers. Obviously Google's price has been impacted. But the point is the price hasn't been impacted nearly to the same degree as immediate revenue. Because? People expect Google to be around and doing fine for a couple of decades. So you're right that these things can't be perfectly predicted... but the stock price still is the result of everyone's predictions, as imperfect as they are. It's not "laughable" -- it's literally how it works, and if you don't believe that, I don't know what to tell you.
deleted 7y ago
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vikramkr 7y ago
The expected net present value[0] of their cash flows is not down 50% since they're expected to recover from the downturn. They're already down quite a bit to account for the downturn, and they might go down further. Or start going up. Depends on how people value their cash flows. If you think that the market is underestimating the impact of this on google, sure you can bet against them, but the institutional mechanics of shorting make it quite a bit riskier than going long, and, well, if you're wrong on what the market price will be, won't turn out well. [0]https://www.investopedia.com/terms/n/npv.asp https://www.investopedia.com/terms/n/npv.asp

pheug 7y ago

They already dropped by 20% from peak. Are you saying they should drop by all 50%? That doesn't make sense. Market is forward looking. Assuming a fast recovery, a couple bad quarters would even hardly matter in the long term. You can model that mathematically using tools like DCF valuation. Another thing, Google has an exceptionally strong balance sheet and can weather this recession for many years if need be. They're not going bankrupt any time soon. You don't go and just short such companies when there's still plenty of leveraged junk out there.

crazygringo 7y ago

Because share prices are based on what people think Google will bring in over the next say 20 years, not the next 6 months. Everybody expects ad revenue to rebound fairly quickly once this is over. You don't expect COVID-19 to be cutting Google's revenue in half over the next 20 years, do you?

ping_pong 7y ago
The idea that share price is based on the next 20 years is truly laughable. The company themselves don't plan anything concrete more than 12 months out and anything further than that is guesswork. To think that you can project revenue even 3 years out is simply fictional (Source: my wife is in finance exec at a public tech company and one of her fields of expertise is FP&A). That said, analysts will make guesses based on financial projections and then give multiples to things like revenue or earnings, depending on the company. If a quarter of Google's revenues is impacted, it will have immediate effects. Of course, that's assuming that it's only a single quarter's revenue which in this case would be wrong. You're talking months of high unemployment globally.
- crazygringo 7y ago
  > anything further than that is guesswork Well of course! Nobody knows what the future will be -- it's all best-educated guesses. That doesn't contradict my point. The stock price winds up being a kind of market-driven wisdom-of-crowds situation of a ton of different people's guesswork, mostly institutions with teams of researchers. Obviously Google's price has been impacted. But the point is the price hasn't been impacted nearly to the same degree as immediate revenue. Because? People expect Google to be around and doing fine for a couple of decades. So you're right that these things can't be perfectly predicted... but the stock price still is the result of everyone's predictions, as imperfect as they are. It's not "laughable" -- it's literally how it works, and if you don't believe that, I don't know what to tell you.

deleted 7y ago

[deleted]

vikramkr 7y ago

The expected net present value[0] of their cash flows is not down 50% since they're expected to recover from the downturn. They're already down quite a bit to account for the downturn, and they might go down further. Or start going up. Depends on how people value their cash flows. If you think that the market is underestimating the impact of this on google, sure you can bet against them, but the institutional mechanics of shorting make it quite a bit riskier than going long, and, well, if you're wrong on what the market price will be, won't turn out well. [0]https://www.investopedia.com/terms/n/npv.asp https://www.investopedia.com/terms/n/npv.asp