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Several thoughts on how ridiculous last week’s downgrade of Google was. It was even more idiotic than the downgrade of the United States:
A) S&P put a price target of $500 on GOOG and called that a “SELL.” Â Google closed Friday at below $500. So in what first grade mathematics class would that be a SELL?
B) GOOG’s purchase of Motorola Mobility amounts to (if it is done in stock, although it will be done in cash) less than 8% of GOOG’s market cap. To bring down S&P’s price recommendation almost 30% again shows little understanding for basic math.
C) GOOG has $40 billion in cash and makes $1 billion in cash a month. MMI’s results are essentially breakeven compared to this (actually, a small loss but inconsequential). Again, to slap a SELL on GOOG and bring down its price target by 30% seems an exaggeration even in a worst-case scenario.
D) The worst-case scenario is that other handset manufacturers freak out and drop GOOG, handing over the advantage to AAPL or even RIMM (some analysts upgraded RIMM). With GOOG holding all the cards on the patents and potentially offering cheaper patent protection from its now 19,000 patents-strong portfolio, it seems less likely that handset manufacturers will abandon the GOOG ship. And where will they go? They can’t go to AAPL. MSFT doesn’t have an equivalent offering. And RIMM is the walking dead. GOOG is the only game in town and that game just got stronger.
E) Someone at the Washington Post wrote this before Google’s IPO many years ago (The IPO price was $85):
"I'll offer up a piece of advice as I head to the beach: Don't buy Google at its initial public offering. If you want to own Google, wait until the dust has settled and the hype machine has moved on. Before the year is out, I'm sure, you'll have a chance to buy Google for less than its IPO price. Possibly much less. So be patient. "¦.”
My guess is the S&P will be eating the same crow that the Washington Post is now eating. The only problem is, in this business, nobody apologizes; they just move onto the next fear story and forget all about the carnage and misery they left in their wake.
See Also: 10 Unusual Things About Google, plus the worst VC decision I ever made. AND Why are Larry Page and I so different, and why didn’t he buy my company?
Please follow me on Twitter; I always post on Twitter first when I have a new article.
Columnist James Altucher will be blogging through the day whenever he sees or hears something that he thinks is wrong, out of whack or just plain ridiculous.
James Altucher is managing director of Formula Capital, an alternative asset management firm. In addition to this blog, he writes a weekly column for Marketwatch.com, and blogs for the Wall Street Journal's Financial Adviser blog. He has written for Forbes, the New York Post, TheStreet.com, the Daily Beast, and many other publications. Altucher also is the author of six books. His latest two are: “The WSJ Guide to Investing in the Apocalypse” and “How to be the Luckiest Man Alive.” Before that he started Stockpickr.com and sold it to TheStreet.com. Before that he failed, succeeded, was hired and fired from at least 10 other businesses and jobs. All of his books are available at Amazon.com but only the last two are worth the paper they are printed on. Tips for blog items are welcome; send to jaltformula@aol.com. Follow James on Twitter @jaltucher.
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