The Tycoon Report

Forget what everybody else is telling you, and sell your shares in Google right now

EVERYBODY MUST GET STONED

At least that's what Bob Dylan believed when he sang those famous words back in the "Go-Go 60's."

And while I'm not sure whether "everybody" should get stoned, I am sure that the words I write today might get me stoned. The "stoning" I'm about to face will come in the form of mountains of hate mail I'll receive within minutes of sending today's article out to you. The reason?

IT'S TIME TO SELL YOUR STOCK IN GOOGLE.

In fact, I think it might be time to SHORT shares in Google, but I didn't want to knock you off your chair before you had your second cup of coffee this morning. But the stock, which is trading now in the $416 range, is at the end of the first phase of its public life cycle.

Now that doesn’t mean that I don’t love Google. Heck, I do business with Google in several areas. What it means, simply, is that the DISCONNECT between PRICE and WORTH is bigger than at any time in the company's short history. For those of you in our audience who are hesitant to sell or short the Internet's version of "KING KONG" I have one thing to say to you:

"SHAME ON YOU."

You're the same know-it-all easy-money schmuck who was stunned in 2001 when you realized how crazy the Internet craze really was. "It'll never, ever, ever happen again," is what people like you swore to people like me at cocktail parties. Of course, when you were reminded that bubbles have, in fact, occurred with some frequency throughout history you dismissed folks like me as "out of touch."

I guess losing 90% of your money in the tech crash was only good enough to give you four years of investing "sobriety." I should probably be thankful that human nature doesn't change (which is why sharpshooters like me will always be there to pop investing bubbles created by silly rabbits like you). 

Now back to my point on Google. Every single company throughout history has four phases to its lifecycle: Phase 1: START-UP Phase 2: GROWTH Phase 3: MATURITY Phase 4: DECLINE

In Google's START-UP PHASE, you had Sergey and Larry using all of their brainpower to create beautiful, intuitive software that would make everybody else’s search look old and clunky. After creating a great product, they raised money from other equally brilliant people who recognized "game" when they saw it and bet on the right horses. Fully funded, Google hit the "GROWTH PHASE" of its business plan and went all out trying to change how advertising is bought and sold.

Now for those of us who have short-term memory loss, what Google REALLY did here was STEAL Overture's advertising bidding system and, using its advanced searching technology, make it better. Thus, advertisers like me were able to better target their ads to stronger search results. Believe me, I use the word "steal" with the utmost respect. This is business, not a playground -- it’s for the big boys. And the big boys know that great ideas are literally a dime a dozen. When you get to the big leagues, it's all about execution. And the people backing these horses knew enough about execution to bring aboard people like Eric Schmidt to execute the heck out of this business plan.

Furthermore, Google WAS AND STILL IS BRILLIANT to hire only Ph.D. level thinkers to run the business. It's not that I think academics or intellectuals are the answer. Quite the contrary. But when you mix STREET SMART THINKERS with REAL WORLD EXPERIENCE, you have a DEVASTATINGLY POTENT COMBINATION!

The eggheads in charge of Google ensured that growth would be torrid enough to make last year’s IPO one of the biggest in recent memory. GOOD FOR THEM -- THEY DESERVE EVERY OUNCE OF SUCCESS. They did it better than Yahoo/Overture, AOL, Ask Jeeves, MSN and everybody else in the space. In fact, it's fair to say they caught all of their competitors ASLEEP AT THE WHEEL. But the Internet Big Three (Microsoft, Time Warner and Yahoo) aren't sleeping anymore. In fact, they've all turned their battleship guns RIGHT IN THE DIRECTION of Google and have their fingers on the RED BUTTON.

Why? Because they see how much money Google is making. And one of the MAIN LAWS of business is that when people see you making gobs of cash, they want to take it from you. That's right.

The Internet Big Three have seen the writing on the Wall, and now want to eat Google for breakfast. Microsoft has hundreds of eggheads working to make its search technology great (I know one of them personally and he is ONE SMART COOKIE). AOL is now shifting to an Internet-based advertising model as its eggheads rush to move its customers away from its dinosaur dial-up days. And Yahoo -- perhaps the one caught sleeping the most here -- has its eggheads moving at the speed of light to do the same.

What happens now? Let me lay it out for you: When everybody starts to move in on your competitive turf, that increases competition. When competition increases, prices drop. Think about it ... All these cats are in the business of selling advertising space.

Now, if you're an advertiser and suddenly you have four or five firms like Google and Yahoo knocking down your door to get you to spend money with them, you'll soon realize that you can play each firm against the other.

Mark my words, this will be the new lingo running around FORTUNE 500 advertising firms: "AOL is offering me a branded deal across all of their networks for $$. If you can beat that, we'll talk." When competition comes into an area, that usually means that a company is headed toward PHASE 3 of its life cycle -- MATURITY.

Now, I'm not saying that Google's growth is finished. What I am saying is that competition is about to take a slice out of both their top line and their bottom line growth. That's why I would sell shares of Google right now (for more in-depth valuation work, read "Is Google Worth It" on our archived FAS Section at the FallenAngelStocks.com website).

Now, onto why I would SHORT shares of GOOGLE. AOL is about to cut a big partnership deal with either GOOGLE, MICROSOFT or YAHOO. And right now, Google sells advertising across the AOL network. But if Microsoft decides to pony up $1 BILLION in cash just to seal the AOL deal (remember, Microsoft has other competitive reasons to slow down Google's cash machine), Google is going to LOSE A BIG PORTION OF ITS REVENUE ... Most importantly, it will lose a chunk of its cache, as many business people I talk to use Google primarily because they sell advertising for AOL, and they want to reach that audience.

Bottom Line:

1.       Google is a great company and will likely be around for a long time.

2.       Google initially caught the BIG THREE flatfooted, and leveraged that to the hilt with explosive growth.

3.       Google now has real competition for the very first time, and will likely see growth and profits slow as a result. This is reason to sell the stock if you own it.

4.       Google MAY lose deals like the one with AOL, which will hurt it much worse than the company will admit.

If this happens, it's reason to short it. Well, folks, it’s time for me to depart (I have to place some advertising on Google before Noon).

LET THE STONING BEGIN!!!