Forum Moderators: goodroi
Google shares, which topped a milestone price of $500 a share last week, are overvalued and poised to fall, just like peers Amazon.com and eBay did, the weekly financial newspaper Barron's reported Sunday.Barron's said Google is overvalued because it trades at 37 times next year's expected earnings and because its growth rate is slowing. It also noted that Google now has the 15th largest market capitalization among U.S.-traded shares, and its price-to-earnings ratio is two to three times higher that of similarly sized companies.
Analysts predicted a 33 percent gain in Google's earnings in 2007, versus the 81 percent increase the company is on track to produce this year, Barron's said.
[news.com.com...]
(Barron's is subscription-only, so I am posting a link to the C¦Net article.)
A teaser from the Barron's article:
Also, the price advertisers are willing to pay for search keywords has fallen. The average price paid to buy a search word across the Web in the second quarter -- $1.27 -- has declined 11% from the start of the year and 34% from the peak of $1.93 in April 2005. So far, companies have made up the difference on volume, but it's a trend worth watching.
I suspect those in the Adwords Forum would beg to differ. ;)
Bubbles is bubbles. They all burst. They burst when there's nobody left to sell to. They burst when the most strident naysayers throw in the towell and admit that they were wrong. Wait for Barron's to say GOOG is going to the moon. THAT will be the top! Bubbles always go futher than anyone expects.
Unfortunately, it is the little guy who gets hurt, and I hope GOOG employees are hedging their bets and selling some of their stock and diversifying.
I know of a couple of sad situations that occured with QCOM employees I know. A friend of mine worked in the SHIPPING DEPARTMENT, and, at the top, had options worth > $1,000,000. He didn't sell. In fact, he made the mistake of exercising the options. Lost nearly all of it because he then owned tax and had to sell deflated shares to cover the tax bill. Another case, a woman I worked with who used to work at QCOM still had stock. Near the top, I asked her if she thought it would be a good idea to sell some. No, she said, she had earmarked the funds for a specific purpose - to buy the house next door to her. She wouldn't sell until it was worth enough to buy the house.
It was never worth enough to buy the house.
That said, QCOM has recovered to about 1/2 of it's all-time high. QCOM has some very strong patents, though that position it uniquely in the mobile phone industry. Does GOOG enjoy a similarly-unique position?
I will say that I think they were smart about what they have done with their over-inflated stock price. They have used the money well enough so that I now think that they are worth more than $100/share. I would probably go long if they drop back to around $150/share.
Even at $500, I wouldn't short them. the bubble will burst at some point, but I would not be surprised if it didn't burst till it was over $1000.
The one thing that Google has, that most other companies that burst don't have, is a record of profitable quarters. If I recall, QCOM was profitable, at least part of the time during the bubble, so it is a good one to compare it to. Google does have patents, and they also have a lot of unique assets including network infrastructure.
One thing that could seriously hurt their revenues is a leveling off of unbranded searches over time. If people start to either go directly to websites more often or type Amazon or Ebay into a search engine because they know they want to shop there and do that instead of searching for bedding of golf clubs and the TM holders have filed TM papers to keep other companies from competing against them and raising the bid prices, then Google's revenues plummet as Google stands today.
Look at most any search campaign. Bidding on your own trademarks is cheap and yields very high returns (except that you would probably get the traffic for free if you didn't buy ads on your own TMs). The bulk of most any PPC budget spend goes toward more generic keywords like bedding, hotels, as well as 3rd party brands that the site may sell.
If the long term trend is for more TM searches, then ad inventory skyrockets on TM terms that don't make Google much money on a CPC basis and drops on the generics that most companies spend the bulk or thier budgets on to build awareness and pull in new customers.
GOOG could be a $200 stock or a $2,000 stock in 5-10 years and a couple things that will influence that are trends in search - generic vs. TM - and what they do with the information they have. Will compaines keep giving them traffic data through the use of analytics, sales data through checkout so that Google can build a really tight, complete model of consumer behavior. The more of that data Google can gather, the more powerful they can become and potentially the more money thay can make.
If they can grab hold of more of the traditional media marketplace, then what they have done so far and their revenues may have barely scratched the surface. What if Google got a 5% cut of 30% of the print buys out there, a few percent on some percent of TV commercial buys they broker or auction off?
10 years from now we may be looking back wondering how we could have been so stupid not to buy GOOG at around $500 or laughing at the fools who did. I suspect it will be the former rather than the latter.
<I don't own any GOOG stock, never have>
