Google stock

[Actual God]

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OP,
I looked at it a little more. If you bought GOOG this time last year, you would not have seen much price increase at all. Certainly much less than the ~14% that the market returned.

As far as being a monster of the future, I agree that Google will get more than its share of internet searches in the future. The problem here is growth. Right now, google is a one trick pony. They make money when Joe Internet-User types in a search and then clicks on one of the relevant ads. How many more people do you think will be searching the internet 5 years from now? Everyone I know is already using the internet regularly.

Google is already the market leader. Do you think they are going to grow by stealing market share from their biggest competitors, Yahoo, and MSN? I doubt it. Google got to be so big because when it launched it actually offered decent search results compared to most of the search engines at the time. Today MSN and Yahoo, as well as a ton of startups are offering search results which are competitive if not better than google. I actually believe Yahoo offers better results than google right now, but thats another story. MS can put MSN as the homepage of every Windows user. When someone buys Vista, you better believe MS is going to have MSN as the default search engine. I expect internet search will continue to be integrated into the Windows operating system. Yahoo is the largest and most visited site on the internet. I use their site daily for mail and stock information. They offer a lot of other content. This will drive their search traffic.

Its going to be tough for google to steal more market share from MS and Yahoo. Sure every time someone on TV says they "googled" something that helps, but people are lazy and I think that Yahoo and MSN are going to hold their own in the search arena because of their installed user bases as mentioned above.

Now GOOG has a PE of 60. (if you don't know about PEs, definitely look it up before buying any stock.) A typical company with decent growth prospects has a PE of 20 - 25. At 60, people are expecting BIG things from google. This means they need to triple their profits, just to be priced as a normal growth stock. How are they going to triple their profits? I can tell you that they are not going to triple their search traffic. They are already one of the most visited sites on the internet. They can expect to grow at about the same rate the internet grows and its not growing at that rate these days. From what I understand, their ads are sold in a auction like system. If you want to put a text ad in their search results, you would pay a penny higher than the guy currently displayed there. Using this auction scheme is great. It means google will get as much money as the market will bear for each ad clicked. However it also means they probably can't just triple their pricing for ads and expect to have everyone continue to advertise. I expect the growth rate for this type of internet advertising is still faster than the growth rate of the internet. A lot of big companies are now throwing their money into internet marketing. TV ads are losing their appeal with Tivos and DVRs becoming mainstream. Internet advertising has been proven to be effective, and more of this "old school" money will show up online. Will it triple in the next few years? I don't know. Its hard to say.

I can tell you that Google right now is valued at $147B making it much larger than Time Warner (TWX) at $90B. Until google came along, Time Warner was the largest media company. They sell more advertising than anyone. TWX made $5B in net income. Google made $2.5B. All these things point towards google being overvalued. I would stay away. Don't get mad at me though if the hype drives GOOG share prices up another 25%. I think ultimately they will have to come down.

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aaaaaand, i'm convinced. thanks for the analysis [img]/images/graemlins/smile.gif[/img]