*UPDATE: A reader suggested that the real problem with Google’s stock today was the Association of National Advertisers urging the Justice Department to block the Google-Yahoo search deal. And now that it has emerged that Justice has hired a pit-bull litigator, Sandy Litvack, to possibly pursue a case against Google, this logic seems persuasive.
**UPDATE 2: An informed reader says our musing about possible forced selling by Legg Mason is “garbage.” We’ve asked for more specifics.
EARLIER: We got some guff over the weekend for referring to Google’s stock (GOOG) as “wheezy.” The market is down, an annoyed reader said–that’s why Google is down. The same theory certainly isn’t true today.
So what’s ailing the Internet monster? In our opinion, several factors:
- Multiple compression from ongoing revenue deceleration and declining-to-flat margins
- No new product to drive next revenue growth cycle (You can say “display” and “video” and “mobile” all you want, but at some point the company actually has to deliver).
- Shockingly high capital expenditures that have walloped free cash flow over the past several quarters.
And a Clusterstock reader adds another plausible reason: A managerial change at Legg Mason, where a very influential portfolio manager named Bill Miller has blown himself up. Several of Bill’s holdings are getting killed today (including Google), and the reader postulates that Bill is getting reined in by new management. (What does “reined in” mean? That the firm has lost confidence in him and has ordered him to trim his positions and diversify his holdings. Or, more drastically, is replacing him with someone who doesn’t share his views).
And here’s another reason Bill Miller might be unloading Google, even if his job is safe and sound: He just, very publicly, lost his shirt in Freddie Mac. It wouldn’t surprise us if Legg Mason Value Trust shareholders are racing for the doors.
SNEAK PEAK: Google’s Future Stock Chart (from last fall)
Bill Miller, Why Did You Back Up The Truck on Freddie Mac?
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