Google was as good as gold in 2005, but any cracks that appear in the Googleplex facade could send hedge funds fleeing for safer pastures and pressure shares of GOOG downward.
Ahead of Google’s fourth quarter earnings announcement, the Wall Street Journal featured Google in its most recent Trading Places article. After noting Google has a higher market cap than Warren Buffett’s legendary Berkshire Hathaway, author Mark Gongloff contrasted the two businesses before citing Google’s need to diversify:
Admittedly, it’s a little perverse to compare the poster child of growth stocks to the home of the world’s most famous value investor. Berkshire has about 180,000 employees, Google about 5,000. Berkshire helps people insure cars, Google helps people find pictures of Lindsay Lohan.
Diversity carries challenges, though. Contextual ads deliver huge profit margins. Other businesses, not so much. One analyst cited in the article noted how a wildly successful Google Video could force Google to spend on increasing capacity and drive down its margins on video sales.
Author Scott Patterson noted the power of hedge funds, “the lightly regulated investment pools for the wealthy that are able to sling millions around in a flash.” Those funds helped drive up the price of gold, and the price of Google too. They could get spooked if Google doesn’t hit the lofty targets analysts have set for the stock.
And one analyst suggested that investors employing a long-term philosophy when buying either 1849-version Northern California gold or 2006-version Mountain View gold should consider the nature of either investment:
“Google and gold are speculative trading instruments, not investments,” said Vitaliy Katsenelson, manager of Investment Management Associates, a Denver-based money manager. “It is hard to imagine buying Google or gold and holding them for five years at these prices.”
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David Utter is a staff writer for murdok covering technology and business.
