Google's China Standoff Won't Hurt Too Much
Posted at 11:40 a.m. EST, Jan. 13, 2009
Is Google's (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 Baidu (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 Apple (AAPL - Get Report) down a couple. Or you buy China Unicom (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 Action Alerts PLUS.) So, no freakout on Google, but a multiple crimper for certain. At the time of publication, Cramer was long AAPL and CHU.