Google (GOOG) crossed the $600-a-share threshold today, giving it a market capitalization of around $188.1 billion. The big questions is, how high can it go? $750, $1,000 or (shudder) $2,000 a share?
Here is what $188 billion buys you:
* 3,133 Gulfstream G550 jets a $60 million a pop. Basically one for anyone with the title “manager” who works for Google.
* A whole lotta media companies: the New York Times Co. (NYT) ($2.86 billion), Reuters (RTRSY) ($16.5 billion), CBS (CBS) ($23 billion), Viacom (VIA) ($28 billion), News Corp. (NWS.A), ($71.5 billion) and Yahoo (YHOO) ($35 billion) — with money left over for buying Facebook at Zuckbuck-prices.
* 940K Virgin Galactic tickets.
* Round-trip tickets to Mars for Larry and Sergey, inflation adjusted, of course.
* The country of Ireland ($190 billion), to be renamed (B)Goog-org. Larry & Sergey can be the royal leprechauns.
Google will touch 800 mark surely but without giving any tenegable product – it is the concept they are selling — good job!
They’ll keep going up until they are no longer cheap compared to the competition.
Google is cheap compared to Baidu (BIDU), Yahoo (yhoo) or Salesforce.com (CRM).
Price to future earnings:
Google: 31.07
Yahoo: 51
Baidu: 87.62
Salesforce.com: 190.52
Google is a bargain compared to those three.
The problem is an investor actually has to read a company’s filings and do some homework as opposed to complain about a P/E (which is among the most useless metrics out there). Earnings are the easiest thing to manipulate; cash flow, on the other hand has to tie.
Take a closer look at Yahoo’s balance sheet and you’ll see:
$2B in net liquid assets (cash+equivalents+receivables-debt-payables)
~$7-8B stake in Yahoo Japan
~$2-4B stake in Alibaba (depending on how conservative the valuation is, etc.)
Now, add these up and you get Yahoo has $11-14B in net liquid assets on the balance sheet.
Yahoo’s market cap was $30B before today. Subtract these out (because they do not contribute to cash flow) and you get $16 B valuation for Yahoo’s core business. Yahoo (excluding the aforementioned assets) will generate $2B in EBITDA in 2007. So, you are paying x8 EV/EBITDA multiple which is ridiculous for a large, non-capital intensive, highly liquid company. For comparison, this is a cheaper multiple than Google and even print media (newspapers have declining top line and shrinking margins). Also, recent internet acquisitions have been going for x20-25 EBITDA, just to put the valuation in perspective. If Yahoo’s EBITDA increases to $2.3B in 2008 (average Street estimate, probably overoptimistic), you are paying x7 multiple. Simple math, as I said.
Has Yahoo’s management stunk it up? You bet. They did as lousy a job running the company as communicating the value they have on the balance sheet.
If you are short yhoo, the math simply doesn’t work in your favor long-term. And that is not that hard to see either.
Likewise, goog has room to go up as well, but the better risk:reward ratio is to bet on yhoo at current prices.
I’m sorry to report that you’re seemingly off by a factor of 1000 on your Virgin Galactic tickets. Aren’t the tickets only $200,000 per sub-orbital flight?
Thus yielding 940 thousand flights?
reinharden
I’d take Ireland if I were the GOOG guys. Then they can land their jet anywhere they want without all the ankle-biters…
I know you’re being tongue in cheek, but don’t confuse GDP with the “price” of a country. The US GDP is around $13 trillion, but there is much, much more than $13 trillion of assets in the US. GDP measures the total value added in an economy.
Lots of business magazines get this wrong as well, with ridiculous statements like ExxonMobil is bigger than all but 16 countries. That equates GDP with annual revenues, which is also a canard.
Interesting list of comparisons.
This is the peak, it’s all downhill from here. GOOG jumped 20% in the last month or two on what? Nothing. Basically, GOOG is THE internet play for a whole bunch of morons who want a play in the internet sector and GOOG is the only option, as they’re the only ones who make any money. As such, the stock is highly inflated and the slightest prick will cause all the hot air to come flying out. I predict that prick will be the copyright lawsuits from Viacom and others and that they will burst the bubble pretty quickly.
Google will keep rocking towards the $1000 level as long as the money managers on Wall St keep seeing an increase in earnings. if its organic growth in earning it’ll just keep rocking. One slow down and ride is over.
GOOG has been out performing all the market indices S&P 500, NASDAQ and Dow Jones. This remarkable run is likely to continue in the future as well. As for me I am Bullish as ever with this stock!!!!
Rein harden…. good catch. thanks man. appreciate the fact check.
Lance
Good point… i was just having a little fun. i kinda know the difference but man, $188 billion is one big number. for a market cap and what not. i am impressed how far this baby has run… and it doesn’t seem to be stopping.
Google has a shot of hitting $1000/share by late 2009: http://fishtrain.com/2007/10/08/google-at-1000share/
ummm…. OM Malik why are you thanking Rein Harden. You had it right. 940K = 940,000.
Seconding Lance’s comment on buying Ireland. The total assets in a country are much more than the annual GDP. Ireland’s residential real estate stock alone (about 550K homes @ 300000 euros each on average) is worth about 230 billion. Add to that all commercial and government real-estate, capital equipment, private belongings, vehicles etc. and you’re probably talking somewhere north of a trillion.
At the end of the day Google is still a search engine.
A high percentage (97 to 98% don’t know exact figure) of Google’s revenue still comes from search related ads like (ad sense etc).
Other players in the market e.g. Microsoft and Yahoo are already trying to snatch a piece of the ad revenue from Google in a very aggressive way. The recent alliance of Microsoft and Facebook case and point.
It is very obvious Google is trying to diversify, using its success in the search space as leverage.
The most recent attempt by Google to diversify and have a shot at Microsoft at the same time has been the launch of Office applications as a hosted service.
A lot of pundits on the web have already commented that many in the past have tried and failed miserably when trying to take on Microsoft’s office suit.
An office application as a service is a good idea for small to medium businesses.
No need to worry about upgrades, backup, disaster recovery, setting up networks etc.
If one is going to use Google hosted apps in their business, they must ask themselves a few questions before they dive in.
Once you are tied into Google apps, can you opt out? I.E can you download all your documents and start using them in MS Word.
Similarly can I upload all my existing documents and load them into Google apps and will all my links and other embedded objects, macros etc work.
Portability is the question here.
Google may slowly tighten the screws forced by shareholder pressure and increase the price of hosted apps; at this point can you opt out.
You might be in so deep that you may be forced to pay the increase, rather than move to another provider. At least with desktop apps you can choose not to upgrade for a while.
If your internet connection is down will your business still is able to function if you are so reliant on hosted apps.
In a medium to large scale business can you afford to have two version of Word, Excel etc since the hosted app may not satisfy everyone’s needs.
This then leads to the issue of training and support.
Do you train some of your staff in Google apps and some in Microsoft apps.
Does the support desk staff get trained in answering Google apps queries or Ms Office apps queries.
Email as a hosted app works well since there is a standard mail protocol underneath it all.
If there was a standard protocol for Word, Excel, PowerPoint etc now that would be something.
The thing is MS Office suite like it or not has become the de facto standard.
Imagine scenario where a company which uses Google apps sends a Google word app document to another company to modify which does not use Google apps, how will this work.
I am not affiliated with either Microsoft or Google in any way.