These two companies disappointed and disappointed badly to me. They didn't deliver what we thought they would, but more importantly they didn't deliver the guidance we expected.
Now what's happening to them? They are creeping right back up, headed back to where they were before the huge misses.
I struggle over these moves because, if anything, things have gotten worse for them. Google's about to close the Motorola Mobility deal, the one where they paid $12.5 billion mostly for technology, including a ton of patents that will help Android gain share. At least that's what they've said. The problem is that right now Apple (AAPL) is pulling away and I don't think this deal will let Android catch up. Nor do I like the Google TV story. That's not a compelling needle mover. I want to see ads get higher rates online and I want to see how mobile is going to be monetized. That would help a long way toward doing something with the Android model that makes up for the profitless way that Google does business vs. the profitable way that Apple does it.
Amazon? I don't know. You have to believe that it was wildly underpromising on that last quarter and I don't think that's Amazon's style. I think Amazon, like Google, is trying to take on Apple, this time on the hardware side with the Kindle Fire and I think that it's just going to cost a lot more money and a lot of gross margin to do so, especially if the reports about a new smaller-form-factor iPad from Apple with 4G that might be perfect for reading and downloading are coming true.
I see no reason why Amazon should go higher.
So what's going on here? Why do stocks go up when they shouldn't? Here's some ideas I am pondering:
- Maybe they shouldn't have dropped as much as they did in the first place. They are still excellent companies with excellent growth prospects. They aren't Nokia (NOK). They aren't Research in Motion (RIMM).
- Lots of hedge funds were short these stocks and pressed their bets when the companies failed to deliver. They are scrambling and they are all competing with each other for stock.
- Lots of growth funds are having strong years and maybe they are getting new money in and they are buying expensive names that may not be valued right in the out years. It's been a long time since we have had people be willing to say, "I want to buy Amazon on 2015 earnings." Under that justification, it just might be cheap!
I don't like this kind of buying. Doesn't make sense to me. But so far 2012 has been a year where all is forgiven and forgotten very soon.
These two have been forgiven and the reasons for their selloffs forgotten. Maybe today will be different with country downgrades and worries about Germany approving the Greek deal. But maybe it won't be and they mark time to drift higher once again.
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