Sunday, February 04, 2007

Google Earnings Institutions Media Hype VS Common Sense Meditation. CS

I hope you have already get the idea what we are doing here, we are thinking. We do not hit instantly Buy button when Institutions are issuing Buy recommendation (we do not have one) and we never Trust our money or our Right to make Decisions to Anyone. We treasure this Freedom and grateful for it to exist in our life. It is not that we are so clever or arrogant or happen to know everything, we just have been there already in the land of quick money and Strong Buy recommendations on ENRON, WORLDCOM, TYCO...you name it - right to the edge of the cliff. We know from experience that if we would like to have a nice martini in a nice place we have to put some work into the process, we do not like to see the life in TV with some mad guys enjoying our money (you get the hint who are really Mad) we like TO LIVE the life and not be parted with our money buying on the tips and following investment advice. That is why we like to read, to think and are using very sophisticated software tools like CASIO calculator in our quest for Value and we are really enjoying it, otherwise it will be so boring. We like the BIG TRENDS, we never chasing 20 or 40 percent because we already know that Thousand things could go wrong on our way to "Home Run" and only enough Value Upside Realisation Potential could justify our Entry with Hard Earned Cash at the Right Time. That is why we like to Draw, pause, look from aside and put another line...it is more like Art for us. "It is not possible and everything is Efficient here" - will stop us educated reader, we will leave this battle to PhD at Universities and at Google (if they are not busy Selling). We have never found such thing (it is like with Weapons of Mass Destruction) - we happen to know different guy who would like to call him Sir and Mister Market (he could even prefer to call him Master but time has changed and we are different now and know how to handle his "maniac depressive" character) and he never get it straight, you know all these "Buy" and "contained inflation with all-excluded-inflationary-items", sometimes he gets nasty and Strong Innovative Companies (mostly in the area of accounting practices) are going into oblivion. Even whole economies or countries or their currencies sometimes seize to exist, because as Sir John Templeton has put it "The four most dangerous words in investing are "it's different this time". We have respect for his style and ready to learn, from him and other old wise guys with money and dignity (even Guys from Google are trying to back link to ONE, I always would like to tell them that their share structure is little bit complicated, poor Joe could find one day that even if he will buy all shares Clever Guys are still controlling his company). This guys are good teachers because they have everything and quick buck is not on their mind rather Legacy is keeping them busy giving to us their wisdom. We tend to be critical of all these "Buy" and "Rising Target" and "Estimates" (of Buyers stupidity?) from young analyst from Big Houses, it looks like sometimes they did not invested in CASIO or have tendency to see only part of figures and are using a lot of monkey language messing up with GAAP and NON GAAP on one page. Big Houses always wins and stays, young guys are going, sometimes they are punished, sacked and even baned for life, but you know - it is not easier for you, your money is gone. You do not even ask sometimes curiosity sake how could it happen? Big House could not afford Casio or it just happen to have Big Positions in recommended stock which need to be unfolded. You know already this MR Market trick: for every happy Seller he needs to find a Sucker - called Buyer or Institutional Client (it is easy to find Suckers when you give them due respect or even better when they manage OTHER PEOPLE MONEY like pension funds come to mind). Why it is always We here? I am really think that if you are still here we are thinking alike and just putting these notes together in order to profit from Common Sense and Discipline, because we know already that there is third very important component for Treasure Hunt in line with Value Upside Realisation Potential and Time - it is Discipline in Execution of our strategy in relation to MR Market. He will challenge us first with NON Believers, then he will try to shake us out. Then we will have to come over "wall of worry" and when we will think that everything is right and feel Confident another blow will come, but the most challenge will be in Suckers' time, when everything will be perfect and everybody will be posting comments here and we will feel proud of our wisdom, but we will be prepared: we will look in the mirror every morning for this magic word SUCKER on our forehead, we will talk to taxi drivers and...we will listen to Big Houses. And when taxi driver will tell us that he has sold Google to buy Junior Silver company and we will see on CNBC scream Buy, we will Draw our Lines, calmly pick up the phone (we will not Trust Email by that time) and say Sell. OK, so what about Google? Same old, same old - time to look in the Mirrors, I have already wrote about Slowing Growth, MC/FCF=95 against Yahoo!'s 28.9, falling Operational cash flow by 9% in Q4 over Q3, saturation point in traffic with Down Trend, Technical Damage, trimming of CAPEX to save Free Cash Flow which is barely flat, but everybody was exited about Earnings and how they "beat" the street. Another surprise here: 13% "Efficient Tax rate" was very handy this Q they have reported EPS 3.29. If we will read ER we will find out that Income before income tax was 1184733, we will apply stated by Google 26% Tax (which is also rather interesting rate) and so normalise tax rate within the year without One Time Benefit due to deal with IRS (they call it "APA" :"Our effective tax rate will be greater in 2007 under the APA than it would have been without it." Surprise, Never Sacrify Party for Tomorrow's Morning.) In plane English if this One Time benefit would not happen now Earnings will be ONLY 1184733*(1-0.26)=876.702 mln USD against 313459 mln shares with Q4 EPS=2.80! way below Street expectations. And the price for it - higher Tax rate in the future. If this deal was not stricken in December 2006 (!) stock will be already below 400 today. Very good timing and clever game as usual.

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