Investment analyst William Morrison of ThinkEquity downgraded Google from "Accumulate" to "Source of Funds," meaning he thinks that right now is not the best time for Google or its stock. Seems that the stock has rebounded 27% over the past three weeks, based on investor sentiment that a second-half-2009 recovery is in the offing. Au contraire, Morrison says. Google's only four quarters into an expected 12-quarter media recession.
Barron's Tech Trader Daily says Morrison is basing his pessimistic assessment on past downturns. For example, in 2001-2003, absolute spending on online advertising fell for eight consecutive quarters, while to date, we've haven't yet seen a single quarter where the market has declined on an absolute basis. Morrison concludes:
"If the current down cycle is anything like the last for online advertising, we’ve got 7 to 8 quarters of market declines ahead of us with growth resuming in the third or fourth quarter of 2010.”
And that's not taking into account that the current recession is expected to be a lot worse than the mild 2001-2003 downturn, and more in line with the Great Depression era of 1930-1933. With that in mind, Morrison says:
“If that’s the case, we believe there is a compelling argument to be made that the declines in online advertising could actually be worse during the current recession than what we experienced post-bubble.”
Optimists may say Google's recent cost-cutting initiatives will help it ride out even a long downturn. But so far today, the pessimists are in the driver's seat. Google's stock has declined 16.25 points or 4.54%.
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