Google stock price above 500$
Investment-wise, I don’t know what to think about Google. Yesterday, GOOG closed at an all-time high 509.65USD.
The fact is that Google looks expensive. It’s P/E equals 65, which in other words means that investors anticipate the growth of markets on which Google makes money, and hence Google’s revenue generation, to be extremely high. If I bought GOOG today, I would have to wait for 65 years to get my money back if the company’s economics remained stable, all things being equal. That’s not healthy, but not Google’s fault either; I remember Monster Inc. trading at an equal PER back in 2000 (against 30- today). Although Monster markets are probably not as massive as Google’s, I don’t think I’m taking a big risk saying Google will trade at a 35-strong P / E ratio in 2010. Time will tell if I’m right or wrong.
Looking at the income statement (or make it P&L account, who knows if I get some traffic from the UK or Ireland) and the annual report makes one realize that the Mountain View 9-year old start-up derives almost 100% of its total revenues (6 bn$) from online advertising.
6 billion USD…That’s about 60% of the 10bn$ big online advertising market. The thing is that this juicy market isn’t going to grow at such a fast rate (+30% nowadays) as it is maturing: Jupiter Research predicts online advertising should grow up to 16.1bn$ in 2009, and 18.9bn$ in 2010 (that’s still a nice +15% though).
Furthermore, I’m not certain the competition will let Google foster its quasi-monopoly in paid search and ad words.
So, in order for Google to satisfy its today investors, the company should either look for new revenue paths (eg monetize its online work tools, or..search) or kill its potential competitors in the egg. There is also a third way to sustaining a competitive advantage: search has become boring. Even with Google, which provides relevant results, I find it hard not to spend time sorting the outcome. I’ve been hearing here and there that semantic search tools are ready in many R&D labs, that picture recognition, and even video recognition features are in the pipeline. As the competition is awakening, & since Google revenues derive from advertising, and advertising comes from Google’s leadership in search technology, Google may come out soon with something new and big in search.
I’m having a hard time decrypting the rationale of Google’s economics and I’d be glad if you could contribute to my better understandings leaving a comment. One thing that’s certain though: Google is an elitist company. It has perfectly understood and integrated the challenges the Western world will face in this new millenium, these challenges winding up to one concept: “human capital”. Google recruits sharp-minded, bright people only, asking for grades from high-school to college graduation, for referrals and project samples. Although I really doubt the best people necessarily get the best grades at school, focusing on recruiting the crème-de-la-crème breed is in my opinion an excellent way to prepare for the future.
Addendum 18:48: about an hour after I blogged this post, Michel de Guilhermier, a French entrepreneur mostly blogging about retail, Apple & investments, published a complementary analysis about Google hitting the 500$ psychological threshold. As a stockholder in Apple & MSFT (but not Google) – exactly like me although I sold my Apple shares 3 weeks ago (I haven’t had any GOOG for 15 months), Michel adds a comparative perspective to my analysis (those who read Tech IT Easy often have for sure noticed that I enjoy a lot Michel’s top-notch blog) that I had wrongly omitted. It’s all there.
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Hi Oliver,
Glad to see you here on my blog. I miss New York too actually, thinking of coming back for a few days some time soon.
Well, as an entrepreneur in the booming financial software industry, how can you have time for trading?
My opinion about Oracle is melted. It’s not black or white. It’s a great, culturally aggressive company with excellent software.
However, the people I know working at Oracle don’t want to make a career there. For me it’s a sign that, unlike Google for instance, Oracle finds it hard to retain talents.
Second and, investment-wise, more importantly – I don’t know if you’ve read “Softwar” (on Ellison – I started reading the book a few days ago) – but Ellison , although I admire him & find this guy to be a true entrepreneurial bulldozer, thinks with his ego as much as with an industrial mindset. I don’t buy so much the external growth, through repetitive M&A, strategy of Oracle. Or Oracle should buy much smaller companies rather than the already big Siebel, PeopleSoft – JD Edwards, etc., it has acquired in the past.
So, brain drain + external growth craze, combined with the fact that markets trade high, suggest that Oracle may not be the best pick at this very moment. But I’ve had Oracle stock in the past and was happy with it. Currrently, I’ve been prefering SAP over Oracle in the enterprise software industry.
Hope it helps.
Oli, I’m only an amateur and tiny (a handful thousand bucks) investor – but thanks for this undeserved compliment. However, I promise you I rather need a strategy consultant for myself at the moment.
Call me either right now or at 6:00pm NY time, up to you.