Editor's Note: This column by Doug Kass is a special bonus for
readers. It first appeared on
on Feb. 1. To sign up for
, where you can read Kass' commentary in real time, please click here
.Over the last month on
and most recently on Jim Cramer's "Mad Money" show, I have cautioned that
share price was assuming the questionable notion that its dominance and momentum would go unchallenged, and that the shape of its growth curve would be immune to market, operational and legal issues. I concluded that for Google -- like for young Pip (a boy without expectations) in Charles Dickens'
-- the trip from being an orphan to a gentleman would be uneven and have its detours.
My view was generally met with a Bronx cheer on
and from many subscribers. This was not surprising for as Rev Shark often
, the trend is usually an investor's friend. And in the case of Google, the share price momentum served almost as a security blanket --which turned out to be more of a shroud Tuesday afternoon.
After the better-than-expected third-quarter results, the Wall Street analytical community seemed to climb over one another raising Google's estimates and price targets in an attempt at one-upmanship that was eerily reminiscent of the Internet Bubble of the late 1990s. In fact, it seemed like "Deja Goo" all over again!
Although a quirk of the tax rate was a big factor in Google's weak fourth-quarter earnings last night, lower-than-expected sequential sales growth, weaker international revenue, higher selling expenses, and a slightly worse EBITDA margin seemed to be the real culprits that caused Google's precipitous share price drop.
The initial response to Google's disappointment was a quick drop in U.S. stock market futures. It was almost as if Google had more of an impact than the
I think the message of the reaction to the company's profit report transcends Google. From my perch, the reaction is proof positive there are consequences to a stock priced for perfection, particularly when fear and greed has been driven from Wall Street. As we move into a more threatening environment for corporate profit growth -- lower operating margins and more tepid sales growth -- this observation applies to the overall market as well.
Doug Kass is general partner for two investment partnerships, Seabreeze Partners L.P. and Seabreeze Partners Short L.P. Until 1996, he was senior portfolio manager at Omega Advisors, a $4 billion investment partnership. Before that he was executive senior vice president and director of institutional equities of First Albany Corporation and JW Charles/CSG. He also was a General Partner of Glickenhaus & Co., and held various positions with Putnam Management and Kidder, Peabody. Kass received his bachelor's from Alfred University, and received a master's of business administration in finance from the University of Pennsylvania's Wharton School in 1972. He co-authored "Citibank: The Ralph Nader Report" with Nader and the Center for the Study of Responsive Law and currently serves as a guest host on CNBC's "Squawk Box." Kass aappreciates your feedback;
to send him an email.