Three Reasons Why You Shouldn't Sell Google

 | Jan 04, 2013 | 12:51 PM EST  | Comments
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You want a tough call? What do you do with Google (GOOG)? Here's a company that missed the last quarter. Missed badly. Seemed to have no plan for taking up the slack of a potential slowdown in advertising. Seemed to have no plan to rein in costs.

The result? A huge downdraft, a 100-point drop, frightening and devastating to the bulls.

Now look at the stock. Here it is creeping back to the levels it stood at before the disappointment, and doing so before we see any numbers that tell us it deserves to retake that ground.

So why not sell it?

Let me give you three reasons. First, the decision by the Federal Trade Commission to let Google off without as much as a real slap on the wrist, let alone restrictions and break-ups, is monumental. First, those of us who remember the dramatic showdown between the Justice Department and Microsoft (MSFT) in the late 1990s had to be fearful that the FTC would take a look at Google's remarkable market share in search, at 70%, and decide, per se, that it is a monopolist and that it was, like so many other monopolists, abusing its power.

But unlike Microsoft, which tried to hammer the government the way it hammered the competition, Google went in not with both guns blazing but with no weapons at all. The whole time that Google was in the government's crosshairs, it simply talked and reasoned. It showed that the company has simply built a better mousetrap. That unlike Microsoft, which jammed Windows and its own browser down the throats of the world, Google had no such market power. Everyone was free to go to Microsoft's Bing or Yahoo! (YHOO) for search, or a host of other companies for search. Plus, Google steered people to Google sites instead of competing travel and entertainment sites because its offerings were arguably superior.

The FTC agreed. It was convivial, helped by the fact that Apple (AAPL) boosted Google's case by trying to switch to its own maps app, and then having to switch back because of Google's superior performance.

Second, advertising, which had gotten weaker, could be getting stronger now, particularly given Google' gigantic European business. It's entirely possible that a headwind could turn out to be a tailwind this quarter.

Finally, Google hasn't even tried to monetize or even lever its tremendous smartphone operating system. That's something that could be 2013's prospect, while at the same time it managed to shed the albatross that was the hardware portion of the Motorola Mobility acquisition.

Now we don't know how well Google is doing with mobile, but we do know that the apps it is offering on mobile, the ones blessed by the FTC, could lead to better revenue streams. We also know that Facebook (FB) is blazing a path toward better mobile revenue, a path that Google could follow.

Normally, I would put Google in the penalty box for at least a quarter after that terrible miss. Now, instead, I think that the Washington-related decline may be just what you need to get back into the stock. I don't like it as much as I like Facebook, which I think is transitioning into a terrific mobile play. But these changes at Google within the time frame of the last quarterly report are too terrific to ignore, and the stock has become a buy-on-weakness, not sell-on-strength, situation.

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