After the close of trading on Thursday, the beloved Google (NASDAQ: GOOG) will report earnings for Q4-2007.  This is the last of the internet giants to report earnings.  Interestingly enough, all of other pure-play web giants that reported earnings have been battered right after the report.  It seems that even the Internet is now economically sensitive at a time when investors are trying to find equilibrium on growth versus value in a slowing economy.

Yahoo! (NASDAQ: YHOO) fell 8% on Wednesday after the Tuesday earnings report.  Even though shareholders here are more patient than any other shareholders, 2008 is only ‘yet another year of a turnaround.’  Yahoo! is actually more expensive on its multiples ahead than Google because it is still the largest web property outside of search, it has the longest portal history of the Internet pure-plays, and there is a would-be takeover premium in the stock.  If Yahoo! management dug in and said they will fight any partnerships or takeovers, and if it just bullied Wall Street on a "we’re sticking to the #2 strategy" then we could even argue it is still 25% too high.

Frankly, comparing Amazon.com (NASDAQ: AMZN) and eBay (NASDAQ: EBAY) to Google is just not a real comparison.  At least that is our take.  But web-watchers look at all these for the inner workings of the web, monitoring traffic, sales, earnings, commentary, new developments and so on.  And the metrics of those properties are being used to judge elsewhere, particularly as eBay was said to be toning down ad spending with Google.

eBay (NASDAQ: EBAY) is down some 9% since it reported earnings lastweek.  The guidance just wasn’t there and the auction volume increasewill have to be great for the company to make up the difference in alower cost structure.  There is nothing really wrong with eBay andthere are no real viable competitors for U.S. auctioneers to hold avirtual garage sale.  We don’t even think it’s an expensive stock forforward multiples.  But no one has ever liked a cheap internet stockand the company has obviously matured.  That is still even after10-years or so supposed to be a growth sector.

Amazon.com (NASDAQ: AMZN) actually fell 12% in after-hours on last lookafter the giant retailer posted earnings. There wasn’t really anythingwrong with the actual report for the last quarter, but even withslightly higher revenue guidance we argue that valuations are startingto catch up to the online retail behemoth.  It has a great business anda great model and even a great team.  It is still growing, butunfortunately it is nowhere close to cheap even if investors don’t wantcheap internet stocks.

So… Where does this leave the beloved Google (NASDAQ: GOOG)?  Sincethe Fed’s emergency rate cut of ten days ago and the cut today,Google’s shares are actually down almost 9% based on the $548.27 closeWednesday.  The worry is that regardless of being the number one insearch, the behemoth just might actually be victim of a recession ornear-recession too.  The company is still spending sharply over newhires, new properties, new initiatives, and likely even on WiMAXspectrum.  If we averaged all the post-earnings performance from theother dominant web properties and assigned a 9.5% drop (average) (andwith a static price of Wednesday’s close), then you would have apost-earnings share price of roughly $496.00.  It seems a stretch tothink of Google back down that low.  Its 52-week trading range is$437.00 to $747.24, so a drop of that magnitude on top of its recentdrop wouldn’t even take it to a new 52-week low.It has growth atreasonable levels and even if ad-spending does continue to slide thisis undoubtedly the best web property out there.

No one can tell you where Google will be in after-hours tradingThursday nor where it will open Friday after all of the analyst chimein with their calls.  We have seen some recent commentary get morecautious and we have even been cautious ahead of many of theseearnings.  Maybe the stock will fall the same as the others.  Maybe itwon’t. The one thing that may actually save the company is that it hasnever offered any guidance.  This stock was just north of $700 on partof the last day of December.  If Wall Street loves the numbers then weknow not all web companies are equal. 

Wall Street has already shown what a poor job it does of pricing inmajor events.  It could even be argued that the entire posture towardinternet stocks hangs in Google’s hands.  We’ll provide a formal andfull preview tomorrow with options pricing, charting, analyzing theanalysts, covering last minute changes and more.

Jon C. Ogg
January 30, 2008 

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.