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#11
01-23-2007, 03:08 AM
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Re: Google stock
[ QUOTE ]
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. [/ QUOTE ] aaaaaand, i'm convinced. thanks for the analysis [img]/images/graemlins/smile.gif[/img] 
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#12
01-23-2007, 06:32 AM
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Re: Google stock
Actually from Jan 23rd 2006 to Jan 23rd 2007 GOOG has returned 12.5% and the S&P index from the same time period has returned 12.6% so I would hesitate to call 0.1% “much less then the market returned”
Really the only way to evaluate what GOOG is worth is to compare its stock price to the price people are willing to pay for other like companies. Let’s compare GOOG to YHOO. For GOOG revenue on a year-over-year basis jumped 70% in the third quarter of 2006. For YHOO revenue on a year-over-year basis increased only 19% in the third quarter. So in the third quarter of 2006 GOOG grew their revenue 3.5 times faster then YHOO. Also if we look at their market share YHOO handled 29% of internet searches in the U.S. in December, compared with 30 percent a year earlier, while Google’s share rose to 47% from 40%, according to ComScore Networks Inc., a Virginia-based firm that tracks web use. Currently YHOO is trading at a 35 P/E and GOOG is trading at a 61 P/E. Is GOOG much more expensive then YHOO based on the current P/E? Yes, but one must bare in mind that it is also growing 3.5 times faster and taking market share from YHOO so it deserves a premium multiple. Also if we look at the forward P/E (price to earnings ratio based on next year’s earnings estimates) YHOO is currently trading at a 44 F P/E while GOOG only trades at a 45 F P/E. So based on the forward P/E GOOG is currently growing MUCH faster but is being valued roughly the same as YHOO so one would assume that either YHOO is over valued or GOOG is under valued. YHOO is probably the closest comp but we can also look at EBAY which grew their revenues by 31% in Q3 of 2006 on a year-over-year basis and trades at a 40 P/E. Again GOOG’s P/E is higher but it’s also growing over twice as fast. [ QUOTE ] 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. [/ QUOTE ] I don’t mean to pick on you but to compare TWX and GOOG is like comparing a Toyota to a Ferrari. Of course GOOG will get a MUCH larger multiple then TWX. GOOG is a growth stock it is currently growing revenues at 70% whereas TWX is more of a value stock with revenue growth of only 7%. That is why GOOG is worth a much higher multiple then TWX even if they net less income then TWX. At one time TWX may have been considered a growth stock but as growth slows most stocks turn into slower growing value stocks this will probably happen to GOOG one day but I doubt any time soon unless they start repeatedly missing their numbers… Long term I believe Google’s stock will go higher based on the facts they are eating Yahoo’s lunch in search, they haven’t even started monetizing You Tube yet, and also Google is doing an amazing job of gathering information about everyone that uses their sites. Google actually saves every search ever done on Google going back to its starts in Stanford and ties all your searches and all the ads you click and pretty much everything you ever do on any of their sites to you IP and saves this information forever(a bit scary I know). I believe in the future companies will pay Google a premium for information that helps them to better target consumers based on the things Google has tracked you doing in the past. In the short term personally I would not buy GOOG until it breaks through the $513.00 double top it set up a week or so ago. If you’re looking for a good entry point that’s when I would buy because if GOOG has enough momentum to break that $513.00 double top then I believe it will probably go significantly higher.
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#13
01-23-2007, 01:39 PM
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Re: Google stock
Ok, GOOG was pretty volatile a year ago, so depending on the day you used to compare in Jan '06, GOOG could have cost anywhere from 400 - 470. The folks who bought at 470 haven't done that well, but the folks who got in at 400 did great.
I didn't really compare those other companies because I feel all of those you mentioned are overvalued. The problem with growth stocks is that it is really difficult to evaluate how long their rapid growth will continue. This isn't a problem specific to GOOG, so I guess I should have left if out and just wrote more about why high flying growth stocks are bad ideas in general. I compared TWX to GOOG for one reason. You can look at TWX to see where GOOG's future growth will come from. Advertising dollars are moving from the old media to the new. New advertising budgets aren't just created out of thin air. But I was guessing google needed to triple its earnings in the next couple years. Google has about 20% of the revenues of TWX. Thats quite a significant chunk already. Are they going to be able to steal another $20B in revenue from the old world media companies in the next few years? They might, I don't know. But the stock is valued like they will today. To see any more price appreciation, they'll have to exceed that. I see Youtube as a liability. They paid $1.6B for a company that contributes nothing to the bottom line. The reason Youtube hasn't been monetized more than it is, is because no one has come up with a clever way to do this. They don't want to place ads in the videos, because people won't watch them as much, and it opens the door to another site to do the same thing without ads. If they do manage to successfully monetize Youtube, then that will certainly help, but Google is already valued at $147B. They need big money to make any real differences. I never like to bet on lightning striking twice for a company. It rarely happens in the tech world. Now I do agree that google has some great things going for it, I just think that the best case scenario is that you pay a fare price for it today. I think that OP was looking for a quick buck, but would be better off with his money invested elsewhere. This google thing just smacks of the former dot com boom/bust.
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#14
01-23-2007, 02:48 PM
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Re: Google stock
[ QUOTE ]
So based on the forward P/E GOOG is currently growing MUCH faster but is being valued roughly the same as YHOO so one would assume that either YHOO is over valued or GOOG is under valued. [/ QUOTE ] I expect Yahoo to have a very big year. There are basically two metrics in the search game: page views and monetization. Yahoo destroys Google in page views. The reason Google is valued higher than Yahoo is because they monetize their page views much much better. It's much easier to increase your monetization rate than to increase your page views. Luring consumers away from their site of preference is extremely expensive and inefficient. This is good for Yahoo because they're already leading in this category (leading Google at least, I think they're second to NewsCorp). The big complaint against Yahoo has always been that their ads are less relevant than Google's, meaning they don't earn as high a premium for them. It's much easier to increase monetization, and Yahoo is doing it with Panama (short description). Finally, it's going to be easier for Yahoo to grow because Yahoo is currently smaller. It's much easier to get big growth from a crappy start than a great one. Also, some people expect lots of purchasers of Google advertising to cut spending on Google ads due to increasing prices for keywords. So why do you think Google is going to keep growing much faster than Yahoo? article
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#19
01-24-2007, 07:14 AM
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Re: Google stock
I don't like shorting stocks that are riding the hype train. Also if google executes to expectations, then their stock price probably won't fall much. I don't think they'll exceed expectations, but I wouldn't recommend shorting them.
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#20
01-24-2007, 11:24 AM
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Re: Google stock
[ QUOTE ]
Really the only way to evaluate what GOOG is worth is to compare its stock price to the price people are willing to pay for other like companies. [/ QUOTE ] This is a bad way to value a company. If company A is over valued, then you can quickly over value company B by comparing it to A. You need to use that gray matter between your ears, not other peoples opinions, if you want to make money in the stock market. Typically, a company like GOOG is valued on it's future stream of earnings, and how effectively those are reinvested/returned to shareholders. It's called discounted cash flow analysis. [ QUOTE ] Let’s compare GOOG to YHOO. For GOOG revenue on a year-over-year basis jumped 70% in the third quarter of 2006. For YHOO revenue on a year-over-year basis increased only 19% in the third quarter. So in the third quarter of 2006 GOOG grew their revenue 3.5 times faster then YHOO. Also if we look at their market share YHOO handled 29% of internet searches in the U.S. in December, compared with 30 percent a year earlier, while Google’s share rose to 47% from 40%, according to ComScore Networks Inc., a Virginia-based firm that tracks web use. Currently YHOO is trading at a 35 P/E and GOOG is trading at a 61 P/E. Is GOOG much more expensive then YHOO based on the current P/E? Yes, but one must bare in mind that it is also growing 3.5 times faster and taking market share from YHOO so it deserves a premium multiple. [/ QUOTE ] This is backwards analysis. Google has been growing earnings much faster than Yahoo, so it deserves (and has) a premium to Yahoo. But Google's value is dependent upon fast it's going to grow over the next 7-10 years. Clearly it ain't going to grow 70% per year for 10 years, or GOOG would be over 100 times bigger in a decade. It's already 47% of the market, so how can that happen? [ QUOTE ] Also if we look at the forward P/E (price to earnings ratio based on next year’s earnings estimates) YHOO is currently trading at a 44 F P/E while GOOG only trades at a 45 F P/E. So based on the forward P/E GOOG is currently growing MUCH faster but is being valued roughly the same as YHOO so one would assume that either YHOO is over valued or GOOG is under valued. YHOO is probably the closest comp but we can also look at EBAY which grew their revenues by 31% in Q3 of 2006 on a year-over-year basis and trades at a 40 P/E. Again GOOG’s P/E is higher but it’s also growing over twice as fast. [/ QUOTE ] Repeat after me. There is no such thing as a "forward P/E" multiple. Basing your valuation not on real earnings, but on someone elses [censored] estimate of future earnings, then applying ratios to that BS, can lead you to prove or accept anything. And you are also only talking about one year. When GOOG's PE (61) is almost twice that of Yahoo's (35), the market is saying it expects GOOG to grow substantially faster than Yahoo over the next decade. How fast they respectively grow their earnings next year is only a small slice of that value.
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