Mark Simon considers the probability of a "doomsday scenario" if Google badly misses a quarterly earnings estimate, which would hammer their stock price, casting a pall over the entire online advertising sector.
This is unlikely to happen, in my opinion, because Google are hedgehogs. (*) They continue to carefully mine their core field of advertising, and enjoy considerable diversification in that revenue stream due to the nature of the auction for keywords, etc. In that context, many of their other "failed" ventures are red herrings – not all that costly, and not threatening management’s solid recognition about where their bread is really buttered.
Even if they do miss a quarter or two, it won’t be by that much, for this reason. In fact, like many, I do (finally) expect to see some inevitable softness in Google revenues based on current economic events affecting the United States.
What if the stock price gets cut in half? Which seems unlikely, but let’s say it does. That’s hardly catastrophic in terms of overall valuation. That would "reduce" the market capitalization to $98 billion. The forward P/E would sink below 18, making it almost a value stock.
This particular doomsday scenario, then, is unlikely to unfold. In 1999, the marketplace for online advertising looked very different.
More unsettling could be that Google management decides to sink a huge amount of money into the infrastructure required to bet the company on something else. That kind of adventurism would make Google’s financials look bad, but that would largely only affect shareholders in a game of musical chairs. This wouldn’t carry over to other players, and might in fact create investment in really cool things that improve the overall standing of online companies by comparison with more traditional players.
(*) – reference: Jim Collins, Good to Great