GOOGLE Tumbles, Expect Nasdaq to be Pulled Down

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Jul 20 2007
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Finally the giant tumbles and the chain reaction is expected to crawl into the Nasdaq market when it opens for trading on Friday. Earlier FinanceTwitter mentioned that Yahoo’s Weakness is Google’s Gain and I’ve considered Call Option on Google’s (Nasdaq: GOOG, stock). Everyone on Wall Street is expecting revenues of $2.68 billion, up 60% over the same quarter last year, nothing less.

And so, when Google reported a mere 28 percent earnings increase, analysts viewed the result as a “major” letdown since the Mountain View-based company’s quarterly profits had never before improved by less than 60 percent. And to prove how disappointed Wall Street is with such figure, Google’s stock was severely punished and the shares plunge more than 7 percent (that’s a whopping $39) in extended trading.

Google earned $925.1 million, or $2.93 per share, during the three months ended in June. That compared with net income of $721.1 million, or $2.33 per share, at the same time last year. If not for costs associated with employee stock compensation, Google said it would have earned $3.56 per share. That figure missed the average analyst estimate of $3.59 per share among analysts polled by Thomson Financial. It marked just the second time that Google hasn’t exceeded analyst expectations in its 12 quarters as a public company – reported AP.

Already well-known for pampering its employees, Google poured even more money into expanding its work force during the spring. Google hired 1,548 additional employees during the quarter, compared with the 1,152 workers it added at the same time last year. Google Chairman Eric Schmidt told analysts in a conference call that the company would be more “careful” about adding employees in future quarters.
Brin reiterated that sentiment in an interview, saying the company would be more disciplined in its future hiring now that it has attracted enough employees to pursue its ambitions. Google ended June with 13,786 employees, a 74 percent increase during the past year.

So, how to salvage the trade that’s in the loss? First, let’s relax and be cool about the trade as you should have anticipate such thing will happens sooner or later in investing world. This is a major letdown, so let’s dissect what would be the majority investors’ perception. The gap-down will definitely follow through the early morning trading and every Tom Dick and Harry is going to dump the shares. It will becomes worst as its’ Expiration Friday so the first 45 minutes of trading is very important. Since your option is not expiring Friday (I hope you didn’t buy the option with 2 days of expiration, did you?) it could provide you with opportunity to make fast money scalping this stock. Expect very high volatility and volume – short the stocks with Put Option.

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