Google's China Standoff Won't Hurt Too Much
Posted at 11:40 a.m. EST, Jan. 13, 2009
(GOOG - Get Report)
China imbroglio much ado about nothing? Well, the first rule of trading is that when you have a premium multiple, the only news you want to hear is that business is getting better. You need an accelerating growth rate to keep a 30 multiple, and this news doesn't help.
Plus there are mitigating factors. China is just not that big for Google, and the wild high estimates of a loss of $600 million in revenue can't be used to figure out what the real impact will be.
And you can't compute the impact by measuring the 42-point gain in
(BIDU - Get Report)
, in part because there was a huge short in Baidu, as the word in the hedge fund community was that BIDU was about to miss the quarter and guide down. A transition issue, I kept hearing.
So, I am not sure of the EPS impact. But here is something I would be worried about if I owned Google -- and I have been recommending Google: What's the impact on the Android? The Chinese cell-phone market is the most vigorous on earth. The smartphone adoption is in its infancy. There is a lot of share to be taken.
I think this Google move could cause the government to shut down Android. That would be a huge deal and a reason to sell Google down the road, as I have a good feel that GOOG earnings will be amazing.
If anything, you don't buy Baidu up 44 -- you buy
(AAPL - Get Report)
down a couple. Or you buy
(CHU - Get Report)
, which is the best distributor of Apple's iPhone in china by virtue of it being the best technology. (I own them both for
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So, no freakout on Google, but a multiple crimper for certain.
At the time of publication, Cramer was long AAPL and CHU.