In a bad day for publicly traded tech companies, Google's stock shares closed at $291 on Wednesday, marking the first time since 2005 that the Mountain View, Calif., dot-com's stock price has slipped below the $300 mark. The $291 is a 6.57 percent drop for the stock.
A parade of negative reports and estimates about ad spending in 2009 have led Wall Street analysts to cut their earnings estimates for Google, which can credit its explosive market valuation to its pioneering search-advertising technology.
Citigroup analyst Mark Mahaney characterized expectations for the fourth quarter of 2008 as "the weakest they have ever experienced," trimming his estimates for Google's earnings by 3 percent.
Also weighing on Google is the report that cell phone giant Verizon may be close to ditching Google as its default mobile-search provider in favor of Microsoft.
It was just more than a year ago, on November 1, 2007, that Google's stock price climbed above $700 for the first time, reaching a high of $741 later that month and leading some analysts and bloggers to speculate that it could hit $1,000 in due time. But by mid-January, the once-unsinkable stock had fallen below $600 and has not yet recovered.
Meanwhile, fellow Valley stalwart Yahoo is in danger of seeing its stock price dip below $10 for the first time since 2003, when the industry was still recovering from the aftermath of the tech bubble pop. Yahoo's stock closed at $10.34, with a low point of $10.02. U.S. Securities and Exchange Commission filings recently revealed that the company has a $73 million bill resulting from failed negotiations with Microsoft over its acquisition bid, corporate raider Carl Icahn over his board takeover, and Google over a proposed search-ad deal.
The Google-Yahoo search deal dissolved at Google's behest, when antitrust regulators threatened legal action, and the company said "pressing ahead risked not only a protracted legal battle but also damage to relationships, with valued partners." A jilted Yahoo publicly expressed dissatisfaction with the decision.
Microsoft had offered to buy Yahoo in a deal that ultimately would have valued the company at $33 per share. Yahoo rebuffed the offer, and, according to some, it may very well regret doing so now.
CNET's index of overall tech stocks was down nearly 5 percent at the end of trading Wednesday, reaching 1,048 points.
In broader economic-downturn news, Treasury Secretary Henry Paulson announced earlier on Wednesday a change in direction for the $700 billion U.S. market bailout, putting more focus on consumer debt and home foreclosures than on sweeping rescues of ailing mortgage-backed securities.
This post was expanded at 1:38 p.m. PT.
Shares of SAP and Google continued their downward trek, as Wall Street weighed in Tuesday with earnings cuts.
Google's shares dropped as low as 5.6 percent in intra-day trading to $350.26 a share, following a 2008 and 2009 estimated earnings cut and lowered price target offered by Stifel Nicolaus analysts. And SAP, which saw its shares pummeled Monday after issuing a warning its third quarter was not shaping up as anticipated, suffered a further decline as analysts cut their earnings estimates.
SAP, an enterprise software behemoth, had its price target reduced to $35 a share from $45 a share by Patrick Walravens, a JMP Securities analyst. He also reduced his SAP earnings estimates to 1.81 euros ($2.47) per share from 1.90 euros ($2.59) per share for 2008, and his 2009 forecast to 2.14 euros ($2.92) from 2.18 euros ($2.97) per share.
Walravens noted in his SAP research note:
While the valuation is getting interesting, we still have several concerns. First, one industry source suggested to us that 4Q could see "a big drop" in orders compared to prior fourth quarters. We think it is important to get a read on how the 4Q business is building and how 2009 might look. Second, our due diligence suggests that 2Q and 3Q may have each included license revenue in the tens of millions from a deal with a major food company--possibly setting up a more difficult sequential comp in 4Q. Third, as we discussed last week, another industry source suggested that one of SAP's customers may have stalled a deal as it saw its own customers beginning to delay payments. This behavior may well intensify in 4Q. Last, we note that it may be more difficult for SAP to reduce expenses than might be the case for Oracle given the high concentration of SAP employees in German and Europe.
On the Google front, analyst George Askew and Reed Meyer of Stifel Nicolaus lowered their Google price target to $525 a share from $600 a share, as well as cut the earnings estimates for 2008 and 2009.
The analysts cut Google's earnings estimates to $19.37 a share from $20.20 a share for 2008, while also trimming back 2009 to $23.51 a share from $26.01 a share.
Askew and Meyer noted in their research note:
We are reducing our financial projections for Google to reflect a more cautious global economic outlook. Our belief is based on 1) the apparent sharp slowdown in business activity late in 3Q08 for companies globally as the ongoing credit crisis depressed business and consumer confidence, and 2) the negative revenue impact of foreign currency moves relative to the stronger U.S. dollar. We conservatively project the economic slowdown to continue through 2009.
Google is scheduled to report its third quarter financial results on October 16, while SAP is scheduled to report its earnings on October 28.
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