# Google (GOOG) July2011 earning rally.



## MoreMiles (Apr 20, 2011)

I got burnt playing earning with direct stocks before so I took a different approach this time. 

I bought 5 option contracts of straddle at $530 July 2011 Expiry (ie, tomorrow), for a total debit of $24. It was a very unexpected result.

Since I had never done this before... I like to know what to do next? Is the Put option still worth anything at opening tomorrow?

If I hope for a short squeeze, what is the best way to keep profit with my Call? With stocks, I set a stop loss limit once the market opens. As it moves up, I raise that limit so when the price reverses, the stop locks in my profit. Is there an easy way to do this with options, without staring at the screen all the time? 

Maybe I should just exercise the Call and do that? But then I would need a massive amount of cash to buy it.

Finally, if I forget to exit my options before the market closes, would my broker automatically calculates gain/loss and apply it? 

Thanks.


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## ddkay (Nov 20, 2010)

Did you sell your contacts? Options will always be worth more than 0.00 until expiry. If you're able to sell both calls & puts that's going to be your quickest and cheapest exit (avoiding extra trading commissions + margin interest if you don't have money immediately available). I believe most brokers automatically exercise in-the-money contracts, so they might give you a ring if you decide to hold on.


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## MoreMiles (Apr 20, 2011)

An update. I did manage to sell both options on the day of expiry. I was very surprised that people would still buy the Put option at $530 for 5 cents. It's a guaranteed loss, even for 5 cents. 

Hindsight is always good. I should have bought more. The straddle only costed 5% so that 13% pop definitely was very unexpected. I am looking at the other options these days for other upcoming earnings... they all cost around 10% net debit. I don't think it's worthwhile to do it for 10% because many times the price does not move beyond that.


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## humble_pie (Jun 7, 2009)

for years now i've sold an otm google put. Just one. It's my Lonesome Goog. A lo-maintenance rollover that pays 1000-2000k per annum on a cost base of zero. Current edition is a short jan 450P.


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## m3s (Apr 3, 2010)

Does that foreign lingo mean you get $1-2k no matter what but you might have to buy 100x$450 Goog between now and Jan?


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## humble_pie (Jun 7, 2009)

foreign ? it seems like my mother tongue to me.

but yes, counterparty could put 100 sh to me for USD 45,000 between now & 3rd friday of jan 2012.

it's a question of probabilities. GOOG is something like 599. Strike price is so far out-of-the-money that the probability of exercise is functionally close to zero.

if goog were to fall enough that my position would be at risk - meaning goog would have to drop lower than about $440 (an option novice would fire back "below 450" but actually the numbers mince up much more finely in real life than does the theory) - if goog were to begin dropping drastically i would commence preparing a strategy to buy back my Lonesome & sell something else.

but goog isn't dropping, so i'm ignoring it & staying busy w other stuff.

i happen to have sold the jan 450P a while ago when its price was higher. If i were starting out fresh today i'd sell a Lonesome jan 500P. On friday i would have collected about 1,290 for this. On monday, if goog falls by even a tiny shiver, i'd ask 1,300. Of course, if goog rises tomorrow, no chance of 1,300 ... but 1,285 would be welcome enough, i should think.


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## peterk (May 16, 2010)

Apologies if this question is broker specific, but in general, when you sell put options do you need to have the funds sitting in cash in your brokerage account? or can you have the ability to buy on margin if it assigns and pay back your margin loan shortly after by selling another asset. I guess in your case HP if you buy back an option if it looks like it will become in the money you will have no risk of it being assigned, so then do you keep the cash at hand to cover the option? I would imagine not, since if you're making 1500/year on a 45000 put sell that's only 3% on that money..


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## m3s (Apr 3, 2010)

You can use margin I'd imagine but similarly what I was going to ask is what's stopping you from selling a bunch of options on the same margin/cash? Do they only let you sell an amount of options that you could afford if they all got exercised at once? Or is it up to you to decide what is safe. Or do they limit you to what you could cover by liquidating all assets?


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## humble_pie (Jun 7, 2009)

_" when you sell put options do you need to have the funds sitting in cash in your brokerage account? or can you have the ability to buy on margin if it assigns ..." _

investor does not need cash to cover in his brokerage account, he needs margin, although i've noticed that some here like to have such cash on hand. I'm not one of these. I do always have cash or margin to cover, but it's spread around & not necessarily even at the same financial institution. Wherever it is, it's liquid, though.

for a short ie uncovered or naked put, all the broker cares about is that client must maintain margin to cover.

each broker has its own margin calculation methodology. To answer you in part, i've just looked up margin requirement for my Lonesome Goog & it is low. This is because the Lonesome is so far out-of-the-money. Margin required is only 3,787.00 as of today.

mode asks an interesting question, why not sell lots more goog puts, i'll get to it another time ...


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## MoreMiles (Apr 20, 2011)

Are we talking about Cash-secured Put selling? I don't see how that strategy improve income than a naked sale. I guess it only avoids a margin call but you may still lose big if the direction goes unexpected.

http://www.cboe.com/Strategies/EquityOptions/CashSecuredPuts/part1.aspx


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## Argonaut (Dec 7, 2010)

humble, that lonesome Google put strategy is so genius that I may have to emulate it. Might I add selling January puts in Apple? Possibly the 280 or 300 options. These premiums seem ripe for the taking.

I'm loving the Pandora's Box that has been opened to me in the world of options.


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## humble_pie (Jun 7, 2009)

argo i am myself more relaxed with puts in goog than in apple. If you compare simple 5-year charts you'll see goog swinging rather sedately, mostly within a 450-620 band, while apple's rise has been meteoric & the band is so much wider. The probabilities in apple are harder to predict imho.

if you are mentioning jan 2012 puts in apple you have fortunately picked 2 that are liquid, ie high open interest. The option trader nearly always wants to go there. Hi open int means more liquidity, therefore more opportunity, when it comes time to sell.

the way i see it, puts in apple return roughly the same as puts in goog while presenting additional risk ...


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## humble_pie (Jun 7, 2009)

mode asks:

_" ... what's stopping you from selling a bunch of options on the same margin/cash? Do they only let you sell ... or is it up to you to decide what is safe ..."_

what's stopping me is that a bunch of goog put options, if unravelled by exercise, would give me a lopsided goog-heavy portfolio & this at a time when, by definition, the goog shares would all be underwater. What a nightmare.

at all times i have short uncovered puts on a bunch of other stocks (i also have far larger margin-consuming diagonal call structures than i have uncovered puts, but these are another story.)

at all times i'm short puts in 3 canadian banks, 2 big energies, 2 big golds, rimm & the lonesome goog, plus recently i sold 5 US puts in cameco. These have been running on & on for years. In other words, i keep on selling OTM puts. The strike prices vary as the underlying stock prices waver up & down, but the ongoing sales are relentless.

the aggregate margin position is well within my margin limits as the broker defines these. I've never had a margin call in my life, not even during the worst of 08/09.

parties seriously selling puts should realize that there is a vast difference between the margin position of an account that's studded, like a cherry cake, with short puts, and the margin position of the same account if one or more of these positions were to be assigned & the cash were not to be in place.

it's the latter scenario that the option trader should keep in mind, even though it may never happen to him. For example, i know how much money all my puts would require if they were all (impossibly) to be exercised at the same time. I'm OK with this amount. I'd have to scramble around some, but i could support the position & i wouldn't get a margin call.

in my case, the broker always permits far greater negative positions than i actually maintain. It's my own sense of safety that keeps me from selling a lot of puts in any one stock. The most serious clusterings i have are 10 otm puts in each of 3 canadian bank stocks. Like all the others, these are short put positions that i've run on and on for years. They've never been assigned, not even in 08/09 when all these puts fell into-the-money.

i work to prevent assignments, if for no other reason than that the commissions are usually higher. In the case of call assignments, i wish to avoid the capital gains consequences of exercise because it means sale & delivery of the underlying stock. Therefore i adjust most option positions from time to time during their lifetime, often some time before their expiry date. Adjusting means buying back an existing position & selling another, usually for a credit if the option trader moves at the right time.

i'd like to mention an important point that option novices & option critics usually don't undestand. Options do not get exercised the minute they slip into the money.

once again: options. do. not. get. exercised. the. minute. they. slip. into. the. money.

usually, they are protected by a premium buffer which means that the counterparty will receive more money by selling to the option bid than he will receive by exercising. There are formulas to analyze the premium buffer. There are certain events such as dividend X dates which make an in-the-money (itm) option vulnerable, and the option trader must continually guard against these early events.

but the fact is that the vast majority of option positions - between 79 & 92% - either expire worthless or else they are bought back to close. Only 8-21% of option contracts are ever assigned, says the options clearing corporation in chicago, in its annual reports for the last 5 years.


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## Argonaut (Dec 7, 2010)

I don't think Questrade will let me sell naked puts. They require $25,000 in the account.. which I have in TFSA + Margin but not Margin alone. I may do put spreads instead.. which they will allow.. but how much margin maintenance will I need?

http://www.questrade.com/pricing/margin_options.aspx

Let's say.. selling the Jan 500P in Google and buying the 450P. Do I need the thousands upon thousands in my account if the put were exercised?


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## ddkay (Nov 20, 2010)

What happens if you write a contract that already exists?


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## humble_pie (Jun 7, 2009)

ddkay they issue more. The specialist's mandate is to make the market.


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## humble_pie (Jun 7, 2009)

argo you can see how your risk position tumbles from 45,000 or 50,000 to only 5000 with the spread you have mentioned. Since both are januaries, it's a vertical spread.

i've no idea how your broker calculates margin or how much they'd allow on the long 450P that you'd be holding. Some brokers would, alas, allow nothing for it.

your spread is probably doable, though. Keep in mind that you're paying 2 commish to set it up. And possibly as many as 4 commish later on to roll it forward.

i've been trying to think whether it would be a better learning experience for a first-time short put trader to put on a position with just one put, or whether he might learn more with, say, 5 less expensive puts in another, cheaper, stock.

in the end i thought it doesn't matter & perhaps all might even be clearer in a one-put situation.

the next thing is to identify your credit spread & how you can work this so as to increase it. Right now it looks like it would be at least 6.10.


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## m3s (Apr 3, 2010)

Humble, I'm still trying to decipher that post but I appreciate it. I didn't intend to infer you should take on more goog options but I was wondering what the ceiling would be. I understood that options aren't exercised immeditaely in the money but the rest is mostly clear as mud. I've read about your diagonal voodoo gibberish before but maybe as resident options guru you could write some guest primer articles for the local bloggers?



humble_pie said:


> it's the latter scenario that the option trader should keep in mind, even though it may never happen to him. For example, i know how much money all my puts would require if they were all (impossibly) to be exercised at the same time. I'm OK with this amount. I'd have to scramble around some, but i could support the position & i wouldn't get a margin call.
> 
> in my case, the broker always permits far greater negative positions than i actually maintain. It's my own sense of safety that keeps me from selling a lot of puts in any one stock. The most serious clusterings i have are 10 otm puts in each of 3 canadian bank stocks. Like all the others, these are short put positions that i've run on and on for years. They've never been assigned, not even in 08/09 when all these puts fell into-the-money.
> 
> ...


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## humble_pie (Jun 7, 2009)

voodoo gibberish ? mode you are a riot. If you weren't an armed force with a good sense of social justice plus elegant taste in single malts & biker landscapes, i swear i might have to contemplate ignore ...

i mentioned to t.gal that options are a steep learning curve. Once up the hill, though, it's magical. Like an endless dance. All gavotte in repeating, dissolving, opposing formations. Easy to understand. You'd be terrific at it.

in puts, you say you are wondering what the ceiling would be. OK it might seem like mud to you at this point in time, but the fact is you have trained your sights on the very core & essence of the problem & you are sensing it remarkably accurately.

the problem particularly applies to small accounts. By definition these accounts don't have much margin & quite often their owners don't have extra cash somewhere else. The margin necessary to put on a put position is far, far less than the margin that is suddenly & brutally required if the put is exercised.

the broker will be fine, because broker will force a margin liquidation to relieve the account debit. But the wretched investor will lose a significant amount of money, overnight. In a worst case scenario he could lose his entire account.

brokers don't warn about this. It's up to each investor to understand the dollar ramifications of his put positions if exercise should occur, and to protect against toxic results. For this reason, some will keep actual cash to pay for exercise right there in the account.

i could show you an example of this, if you like. No use boring U with more text here.


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## Argonaut (Dec 7, 2010)

In my case, selling puts in companies that I could actually afford to buy 100 lot shares of is not worth it. Take Ford for example.. selling two contracts of the January 10P would net me $50. After commissions that would be a whopping $39. I'll stick to buying calls for now.


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## m3s (Apr 3, 2010)

humble_pie said:


> the problem particularly applies to small accounts. By definition these accounts don't have much margin & quite often their owners don't have extra cash somewhere else. The margin necessary to put on a put position is far, far less than the margin that is suddenly & brutally required if the put is exercised.
> 
> i could show you an example of this, if you like. No use boring U with more text here.


So if I said $20k was a decent growing portfolio to get your feet wet with individual stocks, what would be the magic number to join this mystical dance? assuming deep discount brokerage fees, of course

An example would be great unless you want to send it to me or post it in a different thread. I don't think I will be betting the home equity on GOOG options just yet though


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## Argonaut (Dec 7, 2010)

mode3sour said:


> So if I said $20k was a decent growing portfolio to get your feet wet with individual stocks, what would be the magic number to join this mystical dance? assuming deep discount brokerage fees, of course
> 
> An example would be great unless you want to send it to me or post it in a different thread. I don't think I will be betting the home equity on GOOG options just yet though


$20k is probably not enough for selling naked puts unless you do spreads. Worst case scenario if you fall asleep at the wheel with the Google puts, you could lose $50k. humble is the expert though, I only traded my first option contract last week.


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## humble_pie (Jun 7, 2009)

goog puts are not really suitable for small accounts because the risks accompanying possible exercise would be unbearble, imho.

however a goog put spread is a good example to expose the risks.

suppose investor has small account, maybe 30,000 total in it. Very little cash.

he sets up a put spread in goog. He buys a 450 put & sells a 500 put. The most he can lose is 5,000 plus commish less premium received. So much for the theory. It sounds very bland.

the broker, too, likes this margin position. This spread will impair investor's overall margin position by perhaps 3,500-5,000 depending on the broker. This investor, even with this small account, has enough margin to cover.

so far, so good.

now imagine that goog plummets & the short 500 put gets assigned. Oh, dear. Overnight, things turn black & dismal. Investor wakes up to a 50,000 account debit. He's received the stock which has been put to him, but he doesn't have the cash to pay for it. He doesn't have enough margin to cover the debit, either.

promptly that morning, broker phones investor to advise that it intends to force exercise of the long 450 put. This is the only way that this account can collect the 45,000 that is required to mostly offset the 50k debit.

at the end of the day, goog is gone. Investor is left with a cash debit of close to 5,000, whereas 24 hours previously his cash balance had been slightly positive. This is the sudden death part of the story.

our wretched investor must now carry this new 5,000 debit at the margin interest rate until he can raise the funds to pay it off. Worse, if market circumstances worsen, he may get a new margin call that forces him to sell more securities out of his tiny residual holding in order to pay down more of the margin debt.

now let us imagine that this investor began with a larger account - say about 120,000 or more - plus he sold less valuable puts. His account would survive assignment without any margin call. At worst he would have an account debit fully covered by his margin. This would give him some working time & space.

all this is why i wrote upthread that put sellers should maintain a continuous estimate of what funds would have to be raised if all short puts were to be suddenly exercised at the same time (an almost impossible event; one to keep in mind only for a meltdown scenario; but one has to keep it in mind.)

all of the dire stories about put bankruptcies revolve around the exercise of short puts that triggered demand for extra margin, which in turn brought about forced liquidation.

argo you are right 2 puts in F are not worth even thinking about, but i see another possibility in ford. Are you bullish in F ? do you see it going past 15 over say the next year or 18 months ?


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## Argonaut (Dec 7, 2010)

humble_pie said:


> argo you are right 2 puts in F are not worth even thinking about, but i see another possibility in ford. Are you bullish in F ? do you see it going past 15 over say the next year or 18 months ?


I think Ford is a bit undervalued and has more upside than downside but it's certainly not on the top of my list. My favourite US industrials would be Boeing, Cat, and Deere.

What trade were you thinking of in Ford? All of my options money is tied into LULU and GLD calls, which I am the most bullish on and would still buy again today. I was just trying to think of a way to get in on the sell side to raise some extra cash. Preferably low risk. The put spreads are an idea but I would have to check with Questrade to see how much margin it would tie up.


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## Abha (Jun 26, 2011)

Argonaut said:


> I think Ford is a bit undervalued and has more upside than downside but it's certainly not on the top of my list. My favourite US industrials would be Boeing, Cat, and Deere.
> 
> What trade were you thinking of in Ford? All of my options money is tied into LULU and GLD calls, which I am the most bullish on and would still buy again today. I was just trying to think of a way to get in on the sell side to raise some extra cash. Preferably low risk. The put spreads are an idea but I would have to check with Questrade to see how much margin it would tie up.


I think Ford is massively undervalued and I may make this my 3rd long position.

This is my opinion though. Everyone should do their own due diligence


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## humble_pie (Jun 7, 2009)

this is a variation of a standard covered call write. The long leg that would normally be the stock itself is, however, replaced by a long LEAPs option.

there is a reasonable spread of this type in Ford, for smaller account holders who wish to be careful about the few things they are able to purchase yet who are definitely bullish in ford.

buy jan 2013 10 calls bid 4.10 ask 4.20 last 4.15.
sell jan 2012 15 calls bid .59 ask .60.

one could easily buy this pair for net 3.55 not incl commish.

one can see that the potential gain over 18 months is 1.45, or 41% ([5-3.55] / 3.55), which is roughly 27% per annum, all in capital gains which is the most tax-favoured form of income.

the above spread is what our stalwart overseas soldier kindly refers to as voodoo gibberish.

there will possibly be a further opportunity here for additional capital gains as 2011 draws to its close. If the spread is still in the account, investor will most likely be able to roll the short 2012 call forward for another gain.

what i have learned to do after seveal years' experience with these voodoo items is close them out if they pop skyward soon after i set them up. Usually i'll close anything that pops north of 20%. My experience has been that a group of these spreads will return an average of roughly 12-17% per annum, all in capital gains. In general, spreads like these are far more volatile than a basic call-write & investor should understand that, while some will be very profitable, others are going to expire worthless. 

spreads like these have appeal for these kinds of investors:

1) small investors with limited funds. For about 1750 USD, with the above spread in ford, investor can control 500 shares in F for the next 18 months;

2) investors like myself who wish to avoid US dividends in non-registered & capture capital gains at all times;

3) rich investors who wish to limit US holdings in order to avoid possible US estate tax.


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## humble_pie (Jun 7, 2009)

some nice voodoo call spreads in cameco, too, if you believe in uranium.

mix n match US & canadian options imparts a special glow.


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## Abha (Jun 26, 2011)

Back to back blowout quarters. The momentum should definitely take the share price past $600 for good this time around.


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## Jungle (Feb 17, 2010)

Yup. After hours under $575 now. Missed eps by $1.00. 
Down -10% after hours.


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## doctrine (Sep 30, 2011)

Predict that Google will trend to a P/E of 10 over the medium term. Wonder how long until their first dividend... a few more years I guess.


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## GOB (Feb 15, 2011)

This is a carry-over from the AAPL thread...

Can someone please explain to me the significance of Android market share that everyone keeps talking about? Google's earnings grew 5% YOY, Apple's grew 54% (in Q4, could be even higher in next week's announcement due largely to the iPhone 4S). All this has occurred with Android winning market share over iOS in the smartphone market. Clearly Google makes a comparatively small amount money off Android indirectly (do they provide these numbers?). 

If Google keeps offering free products as a way to increase search revenue, I really don't see much growth ahead for them beyond a few years. Almost everyone already uses Google as their search engine. I have an iPhone and I use Google for search - if I switched to Android, Google would make no extra money off me. 

In my opinion, and based on current trends, Google is nearing their peak much earlier than Apple. Apple is the better growth option for tech going forward, and the stock is valued much more attractively as well.

Pumping out decent products for free keeps them relevant and competitive in terms of usage statistics, but when it comes to my hard earned money I'm going with the company that makes more, is growing faster, and is priced incorrectly.


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## PMREdmonton (Apr 6, 2009)

GOB said:


> This is a carry-over from the AAPL thread...
> 
> Can someone please explain to me the significance of Android market share that everyone keeps talking about? Google's earnings grew 5% YOY, Apple's grew 54% (in Q4, could be even higher in next week's announcement due largely to the iPhone 4S). All this has occurred with Android winning market share over iOS in the smartphone market. Clearly Google makes a comparatively small amount money off Android indirectly (do they provide these numbers?).
> 
> ...


Apple is a better buy right now on a valuation basis. They can be bought at a very reasonable EV/EBITDA. They also have better growth for now.

The problem with hardware manufacturers in electronics is that none have ever had great lasting power. One dominates for awhile and then another comes along and takes over. First there was IBM then Apple then Motorola then Sony then Nokia then RIM then Apple again. Who is next, Samsung?

OTOH, software companies have usually had better staying power. Take a look at IBM, Oracle, SAP, Microsoft and Google. All of them are still going strong.

If you look at Google then have a huge moat in search. Search is extremely important in internet usage. Google's algorithms apparently get better each time they are used and see what choices the user makes. So not only is it way better than everything else but it is also getting better faster than everyone else. This is Google's moat.

Google developed Android to try and protect themselves in mobile search. If they become dominant they may eventually try and monetize their software but first they need to become dominant. They will also try to get a foothold in mobile/electronic payments through Android and this is a huge potential market.

Right now I like Apple better as a stock buy but I don't envision it as a buy and hold - someone will come along with a better mousetrap at some point. Conversely, I'd be happy to buy and hold Google if it fell to around 500.


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## GOB (Feb 15, 2011)

I don't know if I would call one product a moat. What else does Google have to make money off other than search? Everything else is basically a loss leader to support search. What if a better search engine comes along? What if Apple's Siri gets refined (it's nowhere near ready yet, but the signs are there) resulting in hundreds of millions of iOS users bypassing Google altogether for whatever they're searching for?

Is it really a good strategy to bet it all on search? Despite the unprecedented explosion in mobile devices, Google made 5% profit growth YOY. That is barely better than inflation. On what basis are they going to continue to grow? If they can only muster 5% during this explosive period in technology with the mobile revolution and the emergence of the third world middle class, what are their plans for growth in the future?

I would argue that Apple has the best moat out of all tech companies because their strategy is unique, and all their product lines (except iPods) are growing rapidly, and they make huge margins off all of them. If smartphones level out, Mac sales will likely continue to grow while PCs fall. iTunes is the #1 music store in the world, and if people buy their music there they won't switch in a hurry. With Apple's plans for education, they have secured a huge moat with major publishing companies and universities basically ensuring that iPad will be the only tablet anybody really wants (and if students have used iPads through school, what do you think they will buy for themselves and their family in the future?)

As for your buy and hold theory, what technology stock has been a better buy and hold than AAPL over the last 30 years? Certainly not MSFT.


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## MrMatt (Dec 21, 2011)

GOB said:


> I don't know if I would call one product a moat. What else does Google have to make money off other than search? Everything else is basically a loss leader to support search.


Google doesn't make money off search, they make money off advertising.
They also have a number of side ventures that few pay attention to such as their VC arm, or various services.

But the basic "Google" people think of has excellent information tools, and good to great people designing new tools. 

A focus on get good information to users, not on "making money". I can't imagine the business case to make money from street view, but when I was looking at a new city to move to, I found the ability to look at neighbourhoods invaluable.

The making money comes from the fact that they can put the right ad in front of the right user at the right time. Do you know what advertisers want, demographics. What can google give you? They can put your ad up when someone looks for restaurants in a city, your toy when they're looking for "gift for niece", your business when someone searches for "wedding planning in Niagara Falls". Next time you investigate a new hobby, see how quickly the ads adjust to focus on what YOU are interested at that time. 

The moat to Google is artifically lowered due to their policy of no data lock in, they force themselves to compete on merit. If you want to stop using gmail for example, use their pop or imap service and copy over all your emails.

If they stop being very good at what they do, they'll start to lose users immediately, constant excellence is essential to their very existance. I think anyone who holds Google stock (like me) has believe that they will continue to innovate and lead, otherwise they have no future.


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## sam (Mar 16, 2012)

google down 4% today ? good buying opportunity ?


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## PMREdmonton (Apr 6, 2009)

I'd wait until it is down around 500-525. This has been a pretty volatile stock that has been on a long upswing without a major correction for awhile now.

I don't believe they are a compelling value right now.

They still aren't monetizing mobile advertising to a great extent yet and they are having trouble getting traction in mobile payments. Then there are all these threats about data collection.

I wonder what the world would think if Google just said fine and closed up shop for a couple of days - then everyone would see the value of the company.

If I were Google, I'd start making people pay for their services. They are simply vital to almost everyone out there but they give it away for free practically.

Some people complain about them collecting data but they actually put up ads that I would be interested in instead of intrusive pop-ups that I have no interest in.

I like the company but they play way too nice with everyone, IMO. They should now switch to a pay for use service and reap billions from everyone in user fees. 

I know when I've tried to use other search engines the results are horrible compared to Google.


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## GOB (Feb 15, 2011)

Pay to use search and have the privilege of getting "good" ads thrown in your face at the same time? Yeah, that sounds like a great way to bleed market share instantaneously. Nobody in thier right mind is going to pay to use a search engine that offers ads. No matter how good and targeted try are, people don't like ads. If anything people wil pay to avoid ads (see the App Store offerings), but it wont work for a search engine. 

Google is not so great that I would ever pay a cent to use it when there are so many other options out there. 

YouTube might be a better option to monetize but I suspect if they do something else will quickly take its place - and again the ads will have to cease. 

Google is not offering anything for "free". There is a very real cost for people viewing ads and having their personal information abused. The idea that Google is some kind of charitable organization because there are no upfront costs to the user is absurd and shows a real lack of understanding.


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## doctrine (Sep 30, 2011)

I wouldn't buy google - who knows what you're going to get? The owners still control the multiple voting stock, and could vote themselves a huge dividend and all of the money and screw the single voters and maybe even more the new non-voting stock.

Who would buy a non-voting stock with zero dividend? Its basically worthless.


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## CashMoney101 (Mar 6, 2012)

doctrine said:


> I wouldn't buy google - who knows what you're going to get? The owners still control the multiple voting stock, and could vote themselves a huge dividend and all of the money and screw the single voters and maybe even more the new non-voting stock.
> 
> Who would buy a non-voting stock with zero dividend? Its basically worthless.


You may not realize how lucrative the online advertising actually is... there are many keywords/phrases that advertisers pay over $10 a click for. And there are millions of key phrases being bid on and billions of searches being made every month. Each time someone clicks one of those ads, google gets paid. To get a sense of the kind of competitive advantage they have in search and traffic analysis/user behavior, it helps to understand how much of the internet's total worldwide traffic flows through them and their network of sites. This is what gives them such an edge in understanding, shaping and profiting from it. Take a look at http://www.alexa.com/topsites to see what I mean.

Google has 3 sites in the top 10 including the #1 and 3 spots with YouTube. Beyond that they have a further 12 sites in the top 50, mostly regional Google sites and some of their other properties like Blogger and Blogspot.

Facebook has the #2 spot, and no other significant sites in its network. 

Yahoo has the #4 spot, and 2 others in the top 50-- Flickr and a regional site.

Microsoft has the #7 spot, and 3 others in the top 50-- MSN, bing etc. 

They control the lion's share of the internet traffic which lets them get better results from analyzing it. They used that advantage to find the best ways to control, direct and monetize it, and built up their algorithms to the point that no there is no actual competitive threat to them, on a technology level. More traffic flowing through them than all of their competitors combined if you don't count facebook as a search engine since its not. Google is where the world goes to find things. Lots of the things people are trying to find cost money, and they have put themselves in a position to get a piece of almost all of that action. Apple sells a few categories of trendy disposable products, primarily to its already established, cultishly loyal target market. I don't see how there is a real comparison here in terms of potential.


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## Argonaut (Dec 7, 2010)

I've got a short put at 500 so as long as it stays above there I'm happy. I think this is the best way to play Google. Credit goes to humble pie.


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## PMREdmonton (Apr 6, 2009)

Well you're pretty darn safe at 500 but I imagine you bought that a long time ago to have it be worth anything. The other thing is if you're going to put up a cash secured put you then have to put 50 000 aside to cover it which is a very large chunk of change for most individual investors.


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## MrMatt (Dec 21, 2011)

doctrine said:


> I wouldn't buy google - who knows what you're going to get? The owners still control the multiple voting stock, and could vote themselves a huge dividend and all of the money and screw the single voters and maybe even more the new non-voting stock.
> 
> Who would buy a non-voting stock with zero dividend? Its basically worthless.


Majority shareholders can't screw over minority shareholders like that.


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## humble_pie (Jun 7, 2009)

actually, he sold the put, he didn't buy it.

he doesn't need 50,000 in cash at all times; what he needs is a hedge or sufficient margin or both.

this is known as the Lonesome Goog Jam Factor strategy, when j = probability of assignment. In this case the jam factor is extremely low. If it increases slightly, if for example goog drops to 550 or 560, a nimble trader will promptly roll to a lower strike price. There are plenty of choices available.

the end result is, as the Red Queen said, jam yesterday and jam tomorrow. In dollar terms, it means $1500-2100 in gourmet wild berry jam served free to a trader's account every single year.

i have been selling lonesome Googs w jam for years now. My present jar is labelled (jan 470P). I sold it some time ago; since then goog has risen substantially; it is true i could earn more without disturbing the j factor by doing a vertical conversion; however for various reasons i shall be leaving it strictly as is.


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## PMREdmonton (Apr 6, 2009)

humble_pie said:


> actually, he sold the put, he didn't buy it.
> 
> he doesn't need 50,000 in cash at all times; what he needs is a hedge or sufficient margin or both.
> 
> ...


Interesting - I always thought I had to have the whole amount of the put set aside when I wrote one in my margin account (only started using one this February after maxed out RRSP and TFSA for myself and wife).

HP, would this strategy work just as well for BRK.B. This one is even more secure in some sense as Buffett has almost guaranteed a put at 1.1 x BV of the BRK empire. I could choose to write a put at 1.15 BRK.B knowing the market would probably respect that and make it very unlikely to need to roll over the put to a lower value. I would think about 75 would be a good value for one. So a Jan2013 75 put would give me 4.10 or so right now but is quite close to the money. That is about a 5.1% return if it expires without being exercised. If worse comes to worse I really don't mind owning BRK.B and have done so in the past and the implied price of $71 is a good entry point.

OTOH a Google Jan2013 525 put option right now gives about 21.50 for a yield of about 3.5%, but if I'm willing to write at 550 I"d get 28 for yield of about 5.1%. So here I need to go 12% OTM to get the 5% over 9 months whereas for BRK.B I need to go only 5% OTM to get the same 5% yield over the 9 months (effective pa yield of 6.7%). It is interesting that you have to go that far much further OTM for GOOG than BRK.B.

Is it somewhat based on Beta to get these results - Goog = 1.08 while BRK = 0.50. Taking the ratio of these gives 2.16 while the ratio of how far OTM you have to go is 0.12 vs .05 for a ratio of 2.4. That is not exact but reasonably close. It seems to suggest the market adds a little bit extra to the ratios of the betas to value the puts of Goog vs. BRK. This seems to suggest the market believes downside volatility of GOOG is worse than BRK which makes sense.

Is this how these things work, HP? I still have been very cautious in which options I write - usually sell OTM puts on stocks trading near bottom end of their rangebound pattern (i.e. GG, ABX) or covered calls on stocks near the top of their range-bound values or where I think they become overvalued( i.e. wrote PM call for $90 due in Sept). 

So I haven't really tried this strategy of far OTM puts on stocks that I don't intend to own. You say GOOG is a good choice because it has volatility but is extremely unlikely to result in significant capital loss and has a large, liquid options market - this results on good yields on puts without very much risk. When would you start rolling down on price - when within 5% of the strike price?


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## Causalien (Apr 4, 2009)

Google has all the information about what you search for and how long you stayed on each site through their webmaster/analytics integration. It can use your own browsing habit to determine whether the content is good. If any government holds this information about every citizen on the planet, there'd be a huge revolt. Google is skynet, without the awakening part yet.
THAT is a powerful asset. 
What I think is exciting at google is that its founders are still actively engaged in new projects. These projects are proven and working, but too early for the public to accept. But when the time comes, google will make money off of them. I see google glass within the next 5 years as their next big thing. Then self driving cars in about 10 years. 

These are the reason why I am looking for any dip to buy google as opposed to apple. Compared to Google. Apple is more of a present money making machine, but yes, what happens after the mobile phone phase dies? I hope they have a secretive project in the pipeline, though knowing their culture, nobody will know that. As an investor, I can't invest by relying on the hope that Apple after Steve has a secretive next project.


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## PMREdmonton (Apr 6, 2009)

I always question Apple's moat. They haven't been around long enough in these new spaces (smartphones and tablets) to see if competitors will challenge them and commeditize them. The past history of electronics suggests that this will happen in a timeframe that will shock the Apple fanbois. Apple will still be a powerful company but there could be a massive compression in margins that most of the Apple fanbois investors don't seem to understand. All they look at it is FPE and see value. I agree with them in the short run but am very cautious about how much further this story runs.

Google has a moat - there is no doubt about it. They have been dominant in search for a long time and become more dominant every year. I actually bet Google comes up with a better assistant than Apple and I know Google has been working extensively in things like voice activated houses. Then there is the self-driving cars project which is truly ingenius. The Google Glasses project looks great. They are starting to monetize Youtube. As time goes on they will get a larger foothold in tablets and smartphones and the Android App marketplace will grow. In North America we think Apple is more dominant in smartphones than they truly are. When you look at Europe and Asia they are a much smaller player as most of the companies have not subsidized the phones heavily and people have gone for cheaper options. I suspect this is the future in North America as the telcos are struggling to build out infrastructure will subsidizing the iphone purchases. As soon as one starts to move the others will likely follow and then there could be a stampede.

I keep thinking about buying Google but I just missed on the last pullback. I had an order at 475 that just never got filled. Then the stock took off from me. I am hoping for a pullback to 550 and maybe I should just sell a put that I just keep rolling over until it gets filled. I'm not sure I'd want all of the stock if it did get put to me but maybe I could just buy and then sell half of it so I keep 50 shares or about $27K worth. It would be the biggest position in my portfolio at that level.


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## buhhy (Nov 23, 2011)

I seriously doubt Android will prevail on consumer electronics. Android is pretty bad, and the OEMs are even worse. HTC spews out phones non-stop, Samsung copies everything, and the Chinese OEMs just create junk phones. Android doesn't have a strong brand, iDevices do. Why do people buy BMW's and luxury cars? Then there's also Windows 8, which provides a better experience than Android. I wouldn't bet on Android.

I don't think Google has a solid vision. But that's IMO. Google doesn't understand consumers, at all. Most of their projects are failures.


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## PMREdmonton (Apr 6, 2009)

Which could you get along with better - An alternative smartphone or an internet without any Google services?

Google has a far stronger moat and is much more innovative than Apple. It really isn't even close.

Apple has been a better design company but that will only carry you so far before electronics becomes commodotized. Once upon a time people used to buy $1000 CD players - doesn't happen anymore. Even amongst those who use CD players at home - they are commodities at best.

Do you think there is still margin in mp3 players? Not really much there anymore.

The same thing will happen in the smartphone market and the tablet market - they will become commodotized. They are just very early in their adoption but the trend is already very strong everywhere but North America in smartphones and has started to trend strongly in the tablet market as well.

Apple will soon need to invent a new device where they can charge high margins. The question is how long they can keep doing this.

Google can keep monetizing internet search for a long time and ad budgets online are still a small part of ad budgets but very effective overall - this is the way of the future and this is where Google rules everyone else. They have an enduring moat and no one can challenge them because they get better everytime someone searches - that's the nature of their algorithms. They get way more search then everyone else so they keep getting better.

I think Apple is a great investment - I got a double on my investment but I sold out around 600. I'd get back in on a fall back to $550 or so in the next year. I don't think they can keep this market cap a decade from now but only time will tell what they can do without their leader. I'm not a market timer - I buy things that are undervalued and I sell out when they are fully valued to look for undervalued assets. I'm sure momentum guys are still riding Apple and time will tell how well they do but it just isn't my style as an investor. I also sold out MSFT at 31. I sold out MDT at 38. I sold out CAT at 110. I sold out CMI at 116. It's just the way I invest and I think Apple is fairly valued and Google is fairly valued but I"d buy both on a correction when they become undervalued.


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## buhhy (Nov 23, 2011)

I could honestly live with neither.

I use a SGS II currently, coming from an iPod touch + dumbphone, and considering moving to Windows Phone. The only Google service that I use that has no equivalent is Google finance, which the API has been discontinued. I use Bing on certain occasions, Hotmail for others. Their cloud services lag behind Amazon, and Azure may be better. Office 365 is better than Google docs, making Skydrive more useful, though dropbox is the best cloud storage provider.

MP3's are more or less obsolete now. But seriously, the iPod dominated the MP3 market, and took the lion's share of the profits. Apple products are also generally competitively priced, unlike that Porsche Blackberry. $1000 MBA has a $100-150 premium over comparable ultrabooks, and provides better build quality. iPhone is comparable in price to the best Samsung offerings, iPad beats all Android offerings at a $50 premium. Not to mention Apple products are fashion items; they are seen as the ultimate in luxury technology. Everyone wants one. Don't forget about China, where brand is extremely important. That is a huge market for Apple.

Also, CPC for web is going down, while mobile advertising is on the rise. Remember that the iPhone accounts for the majority of data usage of mobile devices, considering the majority of Android devices sold are low end with no data plans.

I wouldn't say Google is super innovative, they do their fair share of copying, like Microsoft and Apple. Google just doesn't care as much about the economic feasibility as the other companies, leading to a ton of random products that don't work together and get abandoned after they don't take off.

Speaking of which, how is Google + doing?

I think Google is fairly valued, but I don't see anything big coming out of them for some thing.


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## PMREdmonton (Apr 6, 2009)

I think Google+ is somewhere around 100M users now.

It is better in some ways than Facebook so it will be interesting to see how much migration there is over time.

Google's drive has always been to maintain contact with users so they can be the portal for internet advertising. They have something like 12 of the top 50 websites in the world by traffic including #1 and #3. 

Google has developed all those services and programs to maintain an in-house solution for those users who want to maintain a single environment but they are always happy to let you take your information with you when you leave. I actually think they are incredibly innovative with the stuff they have done like the Google Maps and the computer-driven cars and all sorts of other projects that are always ongoing over there. 

The thing with Apple and margins is that at some point the margins get squeezed to the bone. $100 doesn't sound like much but it is actually a large premium to the other devices. It will whittle away in time and what seems cool at one time is often not cool in 3 years and I can see this happening with iphone and ipad. These things aren't cool - everyone has them and they are all the same.

I agree Google is fairly valued - not interested in accumulating at this price. It is hard to say what the future will hold and I can see catalysts for them but it is a matter of execution - Google wallet, monetizing Android better, monetizing Youtube better, a Googorola set-top box, Google glasses....


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## Causalien (Apr 4, 2009)

The thing about google+ vs Facebook is that you'll never see Linus openly discussing Linux on Facebook. It's turning out to be the social media place for specialists to openly discussing some new implementation... while back in Facebook, I am tired of seeing the baby pictures of girls I know who got pregnant or the nth duckface self posts.


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## kcowan (Jul 1, 2010)

I dont see any moat around Google. Babylon and Bing are good search tools but Googles sheer dominance in ad-paid search is their achilles heel. True, Gmail is the greatest free email. But I use Hotmail too and the Smartphone masks many of the advantages.

G+ and Gglasses. I think it is more positioning than a real competitive advantage. Gdocs is a niche product. I have tried all their offerings but dont find their market presence compelling. Android. I use it every day on my Samsung Gingerbread but I could switch anytime. Battery life is the big problem, doing so much on such a small device. I must charge every day.

So I am from Missouri on any moat.


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## PMREdmonton (Apr 6, 2009)

Sorry but Bing and Babylon are nowhere close to Google in search performance. I tried them when they were hyped as they came out but Google can read my mind way better and usually one of the first 3 choices is what I want and I don't have to re-type my search too much with it. No one comes close to them in search ability.

Google's other moat is they can offer more value for advertisers than anyone else so they are the lowest cost provider by far as well.

That's a moat, too.


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## Just a Guy (Mar 27, 2012)

Unless things like Siri cut off the advertising...

http://www.easysafemoney.com/dont-bet-on-dying-stocks/


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## PMREdmonton (Apr 6, 2009)

Just a Guy said:


> Unless things like Siri cut off the advertising...
> 
> http://www.easysafemoney.com/dont-bet-on-dying-stocks/


Siri sucks.

I'd put my bets on Google over Apple when it comes to AI - it is in essence what they do in search better than anyone else - find what the user is looking for.


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## Just a Guy (Mar 27, 2012)

Quality is meaningless, Microsoft proved that beyond any argument. Siri uses Google, it just doesn't show the ads, hence it hurts Google's revenue stream, while using their infrastructure. Besides, someone else could come out with a better product that does what Siri does...


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## PMREdmonton (Apr 6, 2009)

Google should be able to integrate it better with their own services than Apple ever could and I am sure they will.

When you want to search - you "google it". That is a moat, I'm sorry you don't see it.

Charlie Munger has said that Google has the best moat he has ever seen in any business. The history of Google over the past 15 or so years argues that he is right. Google is the portal for most into the internet.

Siri is a con - this was a serious mis-step from Apple to put out such a defective product. That is not their MO and it tarnishes their brand.


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## JustAGuy (Feb 5, 2012)

Causalien said:


> The thing about google+ vs Facebook is that you'll never see Linus openly discussing Linux on Facebook. It's turning out to be the social media place for specialists to openly discussing some new implementation... while back in Facebook, I am tired of seeing the baby pictures of girls I know who got pregnant or the nth duckface self posts.


Yes, but the thing about google+ vs Facebook is that you'll never see Guns and Roses openly discussing the rock and roll hall of fame on google+. It's turning out to be the social media places for specialists to openly discuss themselves.... while back in google+ I am tired of seeing tech geeks talking about Linux or the nth .... hmmm... well I don't really see much else on google+

That said, it really is all about who you have as friends. If you're friends with people on Facebook who are posting duck face self posts, and if you don't *care* about who you know that got pregnant... well... you really should reconsider who you're keeping as friends. Just today I saw a whole explanation on holography take place from friends that work in that field and are annoyed at the media falsely claiming that the Tupac thing from last night was holographic.


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## CashMoney101 (Mar 6, 2012)

Google+ vs facebook isn't really a major point though. Obviously Facebook has had several more years to work on their technology and build up subscribers. The real kicker is how the traffic and information is monetized which there are plenty of articles explaining the lower quality of leads sent over by Facebook ads via Google. Here's one that I found gives Facebook a pretty fair shake, but as you can see they are clearly not in the same league as the targetted buyers Google is able to locate. http://www.searchenginejournal.com/facebook-advertising-vs-google-adwords/25532/ Edit: Added another article http://www.informationweek.com/news/smb/services/231602311?pgno=2

The other factor that PMRedmonton alluded to is also quite salient. Right now, online advertising has not hit its peak growth. All around us, the world is changing. The world of advertising specifically. You've seen the rapid decline of Yellow Pages which honestly was one of the major places businesses spent money to advertise themselves. I work in Telecom in Small/Medium Business sales and there is clear evidence that most of the money that companies used to dump into their phonebook ads is being pulled and will likely end up allocated to online advertiising. It doesn't make sense to pay thousands of dollars a month to put an ad in a book that is only printed "on demand" now. Then we see the decline of newspapers which is in full swing, so that advertising money will eventually dry up and be reallocated. And I dunno if you are a PVR user? Surely you can see the decline of TV advertising? It's already started, since a lot of users (I think it's approaching half now in North America) use PVRs and don't watch ads. So why pay millions for a TV ad that half the audience is just going to fast forward? 

Take all of this together, and you can see that Google really is in the best position to capitalize on this. And we haven't even talked about mobile advertising. Google controls the software that runs the majority of smart phones? And not only that but the more affordable type? It's really not that hard to connect the dots here. Why does Windows dominate AppleOS? Cause it allows people to buy cheaper hardware and get the same thing done rather than being locked into overpriced "brand name" hardware. Sure you can see there is a market for higher end products like BMWs, but the real point is-- how much bigger is the market for affordable cars? Yeah.


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## kcowan (Jul 1, 2010)

PMREdmonton said:


> Sorry but Bing and Babylon are nowhere close to Google in search performance. I tried them when they were hyped as they came out but Google can read my mind way better and usually one of the first 3 choices is what I want and I don't have to re-type my search too much with it. No one comes close to them in search ability.
> 
> Google's other moat is they can offer more value for advertisers than anyone else so they are the lowest cost provider by far as well.
> 
> That's a moat, too.


I don't know about you. I use Google but I never click through on their advertisers (who are on the right side and the first few at the top of the results page) When I use Google on my smartphone, I never notice ads. Also their $/click are declining. Sounds like the butter is disappearing from their bread. Maybe there is some silt filling up the moat? But so slowly that no one notices until it is too late.

As for their breakthoughs, I can't help thinking it is rich boys playing with their toys...

What are they doing to get ad revenue from Angry Birds?


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## dave2012 (Feb 17, 2012)

Google ads appear everywhere across the Internet, not just top and right side of results of Google. They are always tweeking and improving their ad platform and it continually generates more revenue for 3rd parties (us included). Compared to Jan/Feb last year we have seen a 9.4% in improve CPCs on average for sites that we run Google adsense on. CTR's are also up a bit. Consider that Google owns about 45% of all advertising revenue these days, and 75% of all search ad revenue.

It will be interesting to see how their new 'semantic search' will do which is expect to roll out very soon.


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## Causalien (Apr 4, 2009)

Perhaps the biggest success for Google so far is getting everyone to accept the appearance of ads EVERYWHERE as normal. Even if you don't directly pay attention to ads, if I remember my psych class correctly, you still retain the information.


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## Causalien (Apr 4, 2009)

JustAGuy said:


> Yes, but the thing about google+ vs Facebook is that you'll never see Guns and Roses openly discussing the rock and roll hall of fame on google+. It's turning out to be the social media places for specialists to openly discuss themselves.... while back in google+ I am tired of seeing tech geeks talking about Linux or the nth .... hmmm... well I don't really see much else on google+
> 
> That said, it really is all about who you have as friends. If you're friends with people on Facebook who are posting duck face self posts, and if you don't *care* about who you know that got pregnant... well... you really should reconsider who you're keeping as friends. Just today I saw a whole explanation on holography take place from friends that work in that field and are annoyed at the media falsely claiming that the Tupac thing from last night was holographic.


Nah, not removing my nephews/nieces and my highschool classmates from Facebook and yes, stay away from google+ if you are not into tech.


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## Pluto (Sep 12, 2013)

What's going on with google? Stock is obviously in a down trend. Is this saying something about the market in general?


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## indexxx (Oct 31, 2011)

Old thread- but my god, GOOG is on fire! Up 22% in five days- which is a lot considering its size and share price. Glad I've been sitting on it; bought in a while ago and waited for a pop.


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## daddybigbucks (Jan 30, 2011)

awesome to hear for you. enjoy the ride.

I was on the other end of the stick. I bought in January at its lows to hold long term. Then I sold in may to buy oil stocks.
I should always trust my original buy thoughts.


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## jerryhung (Mar 28, 2011)

I had $520 alert to buy just last week but didn't (with all the Greece/China going on)
and bam! it got away
This (and didn't buy FITBIT at $33) hurts more than not buying the other crazy NFLX


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