Considering that the blogosphere as been going crazy with the recent (invite-only) release of Google+ I thought I’d throw my hat in the ring and breakdown how the news has affected their stock. For those who don’t know, Google owns numerous web sites and other online content for users, advertisers, and other content providers. However, it is important to remember where Google truly makes all their money…
That’s right, those annoying little advertisements before your youtube video are the primary revenue provider for one of quickest growing tech companies around. So, in this sense, Google+ fits in with their overarching business plan because adverting through social media hubs (whether it’s successful or not) is a huge business. This is especially true considering the specialized information that we as users of social media so freely give out. And Google knows how to use that personal information for everyone’s benefit. For example, Google’s Android operating system has been able to stand apart by offering a unique and customizable experience for it’s users. Obviously, that level of customization could not be possible without Google knowing how best to display what each individual user wants to see… which just happens to be a supremely important aspect of social media design.
As such, with Google+, I believe their past experience with service personalization will bode well for their future in this sector.
So then why do I believe Google is yet a buy? Simply put, Google faces an incredibly tough challenge taking on a very large, well financed incumbent networks (Facebook and Twitter). It’s way too early to declare a winner vs loser in this contest. If it turns out to be anything like the browser wars, it may be that winning the contest will be a Pyrrhic victory, i.e. a victory with devastating cost even to the victor.
As much as it pains me to say it, Google’s share price reflects the stock market’s belief that it will be able to find other profitable businesses beyond search. So far that belief has not been warranted by the performance.
Now let’s take a look at the SwamiChart below for confirmation of our hypothesis. As you can clearly see from the middle indicator, you would have received a green buy signal from the SwamiPredict around the 30th of June. Recently prices have been increasing on rising volume (as noted by the increasing white color gradient from the SwamiVolume indicator at the top). This volume activity illustrates the common belief that rising volume drives prices. However, as I’ve explained in past posts, if you see a large jump in relative volume then a reversal could be coming. Finally, the SwamiMarketMode indicator is still suggesting that the stock is in a downtrend (as illustrated by the red color). As such, I would not recommend buying in as the recent jump in price is most likely due to the news of Google+ which is, like most all of Google’s products, full of potential yet to be proven.