First, the U.S. debt rating. And now Google. Standard & Poor's on Tuesday downgraded Google's stock (NASDAQ: GOOG) to a "sell" from a "buy" in the wake of the search giant's $12.5 billion acquisition Monday of Motorola Mobility. S&P lowered Google's price target to $500 from $700.
Shares of Google fell 18.23, or 3.3%, to 539 in Tuesday's trading. Since July 26, Google shares are down 14.1%. For the year, Google's stock is down 9.3%. In announcing the downgrade, S&P analyst Scott Kessler said the acquisition of Motorola Mobility -- maker of smartphones running on Google's Android mobile OS and possessor of about 17,000 mobile and wireless patents -- poses "greater risk to the company and stock." From USA Today:
Kessler noted that despite Motorola Mobility's "extensive and and valuable patent portfolio," S&P wasn't sure it could protect Android from intellectual property disputes.Further, he noted, the Goolge-Motorola deal would negatively hit the search giant's growth and financials.
That's because in buying Motorola Mobility, Google acquired a low-margin device manufacturer with a huge payroll. In contrast, Google's core business -- online advertising revenue derived from its market-leading search engine -- generates tremendous margins. (Business Insider's Henry Blodget published a long column Tuesday detailing why he thinks "Google-Motorola will be a colossal disaster. It's an interesting read.) S&P, of course, triggered a fusillade of political finger-pointing on Aug. 5 when it downgraded U.S. debt to AA from AAA, citing ongoing dysfunctionality in Washington regarding the debt ceiling, deficit spending and general economic idiocy.