The Exchange

Google $1,000: Beware of Flashy Price Targets

The Exchange

By Marek Fuchs

Self-fulfilling prophecy or crushing burden? We know this much: The Google (GOOG) $1,000 price targets, issued in rapid-fire succession in recent weeks and months, will not go gentle into that good night. In fact, the company’s second quarter earnings, due out after the stock market closes on Thursday, will be seen in large measure through the lens of that $1,000 benchmark.

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Blessing or curse?

Funny you should ask. Analysts, according to FactSet, expect earnings of $10.81 per share on revenue of $11.4 billion but, as is always the case with bright, shiny price targets, the possible implications go well beyond raw numbers.

Let’s take a moment.

Showy price targets

The bin that is stock market history is filled with the ash of companies that received showy price targets. Most recently, of course, were the Apple (AAPL) at $1,000 predictions or the even more bumptious $1,111, issued in April of 2012 by Topeka Capital analyst Brian White.

$1,111.

How’s that for numerical eye candy?

The symmetry - and comedy - was not lost on many in the know when, just over six months later, that same analyst lowered his Apple estimate to $888.

$888.

The rest, as they say, is asymmetrical history. About two months ago, Apple broke through $444.

“Apple to $1,000 (or $1,111)!” was, at least, a temporary death knell for the stock, as good a harbinger as any that it had hit a top. The parade of pay-attention-to-me numbers was emblematic of the fact that so many analysts loved the stock that the only thing left to do was to play a game of shiny numbers. From there, it was all systems down.

Internet mania

Henry Blodget’s “Amazon (AMZN) $400,” issued at the height of the Internet mania in December of 1998, has a somewhat more complicated legacy.

With all the jacked-up emotion embedded in the stock market at the time, the call created its own sense of momentum. With the call adding fuel to the uptrend fire, the stock hit $400 that next month. Then came the puncturing of the Internet bubble and years of struggle.

Since then, of course, Amazon shareholders have fallen into a veritable tub of butter with the stock trading (adjusted for splits and inflations) many times the “$400” Blodget shouted from the rooftops. More often that not, though, gimmick-laden prophesies – from Harry S. Dent Jr.’s “Dow 35,000” to more notice-me gold and gas prophesies than we can adequately catalogue in one sitting – end poorly.

With all the standing and shouting about Google $1,000, we need to take note of a caveat. When it comes to Google, which has been trading in the high $800s or $900s since mid-May (it is currently at $918), $1,000 is a comparative rock-skip away.

That said, Google $1,000 has already helped set expectations immeasurably high. Moreover, “Google is the new Apple” has emerged as a narrative waiting to happen.

An Associated Press headline on Tuesday, for example, asked: “Will Google's 2Q report catapult stock to $1,000?”

"Catapult" is a pretty loaded verb for a quarterly earnings preview story. But that’s what tends to happen once brazen price targets are set in place.

The time crunch

Worse – the $1,000 prediction has already created a time crunch, effectively putting Google on the clock. Said the Associated Press: “The window for Google's stock to break the $1,000 barrier might not be open for much longer.” They are referring to the prospect of a stock split, as if it matters if the share price is lower on a higher float of shares outstanding. But there you have it: The false construct of the cute prediction effectively starts an egg timer. When’s it going to get there? Why not sooner?

Beware. When it comes to trading, impatience is no friend.

Neither is getting hitched to a sour story. On Thursday, Seeking Alpha trotted out the Google as Apple story line, asking, Could Google Face An Apple-Like Fall? It's still hard to view Apple as a cautionary tale, but such is the downside of expectations that come harnessed to bumptious price targets. What of it: Will Google shareholders end up as despairing as Apple’s?

Anything is possible. In the grand scheme of things, Google $1,000 is certainly no Dow 35,000. Google isn’t far from it. Moreover, Google has a lot going for it, from newer initiatives such as Android to their stalwart standing in search.

But we also know this: If history has taught us anything, it's to arch a brow at catchy price targets. A flashy expectation essentially becomes an indwelling spirit, attracting fast, fleeting money, raising expectations, contorting time frames and forcing story lines.

Marek Fuchs was a stockbroker for Shearson Lehman Brothers before becoming a journalist who wrote The New York Times' County Lines column for six years. Fuchs speaks regularly on business and journalism issues at venues ranging from annual meetings of the Society of American Business Editors and Writers to PBS to National Public Radio. His recent book, "Local Heroes: Portraits of American Volunteer Firefighters," earned widespread praise. He is on the writing faculty at Sarah Lawrence College. When Fuchs is not writing or teaching, he serves as a volunteer firefighter. You can contact him on Twitter: @MarekFuchs.

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