Sean Udall is the author of the TechStrat Report, a tech focused newsletter. The following is a free sample. Take a free trial!
As it turns out my first suspicions ended up being true. Something was indeed strange in yesterday's Google
(GOOG) EPS miss. But that doesn't make it hard to explain.
What most analysts are saying (and I confirmed), net of currency and a higher tax rate, the earnings are inline. This is notable even though revenue came in a bit light. The other factor I'm noting -- and I've only seen one mention of in the media -- is the impact from the interest income/expense line. Google actually posted a small loss here versus what could have been income of $260 million (give or take $15 million).
If this alone is factored, and I ignore taxes and currency, Google's EPS growth rate comes in very close to 20%, which was consensus. If all three are added, the EPS line grows by 30%. This also explains why operating and free cash generation was very similar to last quarter's very strong result.
Now looking at IBM (IBM) and Microsoft (MSFT). Both stocks are higher post results. Taking a deeper look, IBM and Microsoft posted 8% and 5% revenue growth respectively, and are reacting well, trading higher, while Google is down nearly 10%. This is backwards and I think portends to selling.
The net of all this is that I added Google in post-market trading, and I also bought an initial hedge position in ProShares UltraShort QQQ (QID). My reasoning here is that I think all of the above could reverse. I expect Google to start moving higher, Microsoft and IBM to back off, and the market to experience some selling. If I felt that Google could make up the down $60 today, I obviously wouldn't be adding the QID, however it will take days to weeks for Google to claw back that move.
Lastly, I continue to hear the negativity and disbelief in Intel's (INTC) results. I do not concur here. Along with Google, "the real" results here were very strong and should support the Semi-Cap equipment stocks and possibly other semis -- even so, I expect some backing and filling in the semis if Microsoft and IBM reverse.
Positions in GOOG, QID
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