Thursday, December 13, 2007

Google (NASDAQ:GOOG): Spectrum Bid Could Be A Short-Term Negative for Google, If Won - CIBC

- CIBC is out with a cautious call on Google (NASDAQ:GOOG) saying they believe the co is bidding an amount in excess of $4.6 billion for the FCC's 700 MHz wireless spectrum auction, which is expected to start January 24, 2008.

The firm believes most investors expect Google to bid more as a matter of principle than putting in a bid to win, mainly showing its support for open wireless networks, bidding no more than the $4.6 billion reserve auction price for the "C block" in this auction. However, if Google ends up winning this auction, they expect the win to pressure the stock in the near term due to lower interest income and concerns that op-ex could increase to support a more aggressive expansion into the wireless business.

Winning the spectrum bid would mean spending $5 billion or more on the spectrum purchase, while building and operating a wireless network could cost about $10 billion more. More likely, the firm expects Google would partner with a network provider, in the event it wins the auction. If the company chooses to build and operate its own wireless network, they believe the adverse stock price impact will be stronger.

Overall, they view a potential spectrum auction win as a negative for Google.

Notablecalls: Capex has been an issue for Google for quite some time already. I'm sure the market participants would not take kindly to a $10-$15 billion foray into wireless networks (on top of the usual $2+ billion capex for core business).

I suspect GOOG stock may see some pressure following this call.


FeirFactor said...

That's a real technical reason to be cautious on the stock.

The best reason is just that it's a much loved, high flying, and expensive (32-33 times forward earnings when you back out net cash) company as we head into a potential rough spot for the economy.

Brian said...

Why do so many people think Google is expensive? A forward P/E of 33 can only be called expensive if earnings are growing less than 16 - 17%, at least in my mind and many other people much smarter than me.

Any guesses out there as to when GOOG "slows down" to that kind of growth? My guess is it will be a few years at least.