• curiouscat.com
  • About
  • Books
  • Glossary

    Categories

    • All
    • carnival (41)
    • chart (8)
    • Cool (35)
    • Credit Cards (45)
    • economic data (62)
    • Economics (439)
    • economy (126)
    • Financial Literacy (292)
    • Investing (324)
    • Personal finance (356)
    • Popular (43)
    • quote (194)
    • Real Estate (120)
    • Retirement (65)
    • Saving (90)
    • Stocks (158)
    • Taxes (51)
    • Tips (129)
    • Travel (7)

    Tags

    Asia banking bonds capitalism chart China commentary consumer debt Credit Cards credit crisis curiouscat debt economic data Economics economy employment energy entrepreneur Europe Financial Literacy government health care housing India interest rates Investing Japan John Hunter manufacturing markets micro-finance mortgage Personal finance Popular quote Real Estate regulation Retirement save money Saving spending money Stocks Taxes Tips USA

    Recently Posts

    • New Health Care Insurance Subsidies in the USA
    • Individual Stock Portfolio Investment Planning
    • Finding Great Investments Keeps Getting Harder
    • Huge Growth in USA Corporate Debt from 2005 to 2020
    • Retirement Portfolio Allocation for 2020
    • Tencent Gaming
    • Tucows: Building 3 Businesses With Strong Positive Cash Flow
    • The 20 Most Valuable Companies in the World – Jan 2019
    • 20 Most Popular Posts on the Curious Cat Investing and Economics Blog in 2018
    • An Inverted Yield Curve Predicts Recessions in the USA
  • Blogroll

    • Curious Cat Management Improvement Blog
    • Freakonomics
    • I Will Teach You to be Rich
    • Jubak Picks
  • Links

    • Articles on Investing
    • fool.com
    • Investing Books
    • Investment Dictionary
    • Leading Investors
    • Marketplace
    • Trickle Up
  • Subscribe

    • RSS Feed

    Curious Cat Kivans

    • Making a Difference

Investing and Economics Blog

Is Google Overpriced?

Don’t go gaga over Google by Geoff Colvin, Fortune senior editor-at-large:

It has created more investor wealth in less time than any company in history. So investors, repeat after me: All hail, Google! But don’t put it in the wealth-creation pantheon quite yet. And please don’t buy it at today’s price.
…
we need to remember that the ringing superlatives are based on a stock price that’s nuts. Google is a terrific company that may one day deserve to sit beside GE, Exxon and Microsoft. But not yet.

He is welcome to his opinion. Lets look at some previous opinions, August 2004 Wall Street Week transcript:

COLVIN: There’s another question. We now have a company that people have to decide whether they want to invest in. $23 billion is a high valuation for a search engine, right? I mean…
KIRKPATRICK: For anything.
COLVIN: For anything. And, you know, we can remember when AltaVista was everybody’s favorite search engine. Google came along, better product, superior, took away the market, but who’s to say the same thing won’t happen to them?
SCHLOSSER: Well, they are creative guys, though. I mean I have a lot of faith that they’ll come up with some new ideas down the road that we’ll be able to watch for years to come.
COLVIN: What do you think, David? Is this valuation justified?
KIRKPATRICK: Well, I would never say that. I think any kind of valuation at this sort of level is very, very hopeful about future opportunity.

It is true Google is priced to perform well today (and if they fail to do so the price will go down). And I don’t think it is as good a buy today as it was at $185 (I foolishly didn’t buy at IPO). I did buy more earlier this year, which I am happy to put away for a decade and see where it is then. It is great if you can buy a good stock cheaply but often you are better paying more for a very well managed company than buying cheap companies (by PE, cash flow or EVA or whatever measure you want to use). When I started the 10 stocks for 10 years portfolio in 2005 I put 12% in Google which has increased 134% (along with 12% in Toyota, which is up 67%, and Dell which is down 15%). Google is actually the 3rd best performer as of today (Amazon, up 136%, moved ahead and PetroChina is up 140%). I don’t think Google investors are betting on impossible growth, but time will tell. And the internet makes it easy to see what people predicted previously so we can all see who was right in 5 or 10 years.

I do think at these prices Google is a riskier investment (with lower likely returns) than is was at lower levels (Amazon too). While this may seem obvious, it really is not as obvious as it may seem. If Google’s prospects had improved more than the price increased then at a higher price I might see it as a safer, or possibly better investment… This is what happened when I first bought Google at maybe $190 – after not buying at the IPO. Basically I do not believe Google’s prospects have not increased as much as the stock price in the last 2 years. Certainly I could understand passing up investing in Google today (if so, I would keep a watch out and consider buying if it falls…) but I am perfectly happy to keep my holdings.

Read this article from Fortune (not by Colvin) in 2004, GOOGLE @ $165 Are these guys for real? some quotes:

But the doubters–and there are many–point to shadows in the nursery: questions about Google’s geeky, dot-com-era management style and the possibility that it can’t cope with growth; recent sales of stock by insiders and other major stakeholders (including Time Warner, FORTUNE’s parent and owner of AOL, which lately unloaded $188 million worth); and increasing pressure from Microsoft, Yahoo, and other formidable rivals that would like to crush this infant in its crib
…
Goldman Sach’s Anthony Noto recently assumed that earnings could also rise by a 25% annual rate through at least 2009, which then justified his new “target price” of $215.

Now let’s check such math and figure out just where it implies Google might be ten years out. Assuming 20% annual returns from that $165-a-share level (a reasonable investor expectation given the risks), its market cap would soar from around $45 billion today to $278 billion by 2014. That is a lofty height where only a handful of blue chips stand today–GE, Exxon Mobil, Wal-Mart, Citigroup, Pfizer, and Microsoft, to be precise. Dazzling? Yes. Doable? Only if everything over the next ten years goes right.

via: Google Investors Betting on Impossible Growth

July 25th, 2007 John Hunter | 5 Comments | Tags: Investing, Stocks

Comments

5 Comments so far

  1. Curious Cat Science and Engineering Blog » Great Speech by Marissa Mayer on Innovation at Google on August 8, 2007 9:40 pm

    […] far every time I hear one of Google’s leaders speak I am happier that I own a bit of stock – this is another instance of […]

  2. Maggie on August 13, 2007 6:53 am

    Google is overpriced by almost any model. The prev poster is one of those ‘hopers’ who think there is free money. Google have had a clear ruin at it for a while, but nothing stays the same. Look at altavista, for example. If you look at the chart for the entire dow, its DOWN, dude. Probably for a while.

  3. Curious Cat Science and Engineering Blog » Google Offers $10 Million in Awards for Google Phone Development on November 12, 2007 1:09 pm

    Those selected will then be eligible for even greater recognition via ten $275,000 awards and ten $100,000 awards. Once again Google is showing they understand how to manage in the new world…

  4. Read the Curious Cat Science and Engineering Blog in 35 Languages on January 5, 2009 8:10 pm

    I have added a Google gadget to the right side column of the Curious Cat Science and Engineering Blog that translates our blog into 35 languages…

  5. Could Amazon Significantly Impact Google’s Adsense Income? at Curious Cat Investing Blog on September 2, 2014 11:28 am

    This is potentially a real risk to Google. The odds of such a huge success it decreases Google’s profits are tiny (I think). But there is a real risk that the increase in Google’s profits going forward are materially affected by a well done competitor to Adsense…

Name (required)

Email (required)

Website

Speak your mind

« Another Great Quarter for Amazon
Too Much Stuff »
Copyright © Curious Cat Investing and Economics Blog

    Personal Finance

    • Credit Card Tips
    • IRAs
    • Investment Risks
    • Loan Terms
    • Saving for Retirement
  • Archives

      All Posts
    • March 2021
    • January 2021
    • August 2020
    • March 2020
    • February 2020
    • January 2020
    • May 2019
    • January 2019
    • December 2018
    • November 2018
    • October 2018
    • August 2018
    • May 2018
    • February 2018
    • January 2018
    • November 2017
    • October 2017
    • September 2017
    • August 2017
    • July 2017
    • May 2017
    • April 2017
    • March 2017
    • February 2017
    • January 2017
    • December 2016
    • November 2016
    • October 2016
    • September 2016
    • August 2016
    • July 2016
    • June 2016
    • May 2016
    • April 2016
    • March 2016
    • February 2016
    • January 2016
    • December 2015
    • November 2015
    • October 2015
    • September 2015
    • August 2015
    • July 2015
    • June 2015
    • May 2015
    • April 2015
    • March 2015
    • February 2015
    • January 2015
    • December 2014
    • November 2014
    • October 2014
    • September 2014
    • August 2014
    • June 2014
    • April 2014
    • March 2014
    • February 2014
    • January 2014
    • December 2013
    • November 2013
    • September 2013
    • August 2013
    • July 2013
    • June 2013
    • May 2013
    • April 2013
    • March 2013
    • February 2013
    • January 2013
    • December 2012
    • November 2012
    • October 2012
    • September 2012
    • August 2012
    • July 2012
    • June 2012
    • May 2012
    • April 2012
    • March 2012
    • February 2012
    • January 2012
    • December 2011
    • November 2011
    • October 2011
    • September 2011
    • August 2011
    • July 2011
    • June 2011
    • May 2011
    • April 2011
    • March 2011
    • February 2011
    • January 2011
    • December 2010
    • November 2010
    • October 2010
    • September 2010
    • August 2010
    • July 2010
    • June 2010
    • May 2010
    • April 2010
    • March 2010
    • February 2010
    • January 2010
    • December 2009
    • November 2009
    • October 2009
    • September 2009
    • August 2009
    • July 2009
    • June 2009
    • May 2009
    • April 2009
    • March 2009
    • February 2009
    • January 2009
    • December 2008
    • November 2008
    • October 2008
    • September 2008
    • August 2008
    • July 2008
    • June 2008
    • May 2008
    • April 2008
    • March 2008
    • February 2008
    • January 2008
    • December 2007
    • November 2007
    • October 2007
    • September 2007
    • August 2007
    • July 2007
    • June 2007
    • May 2007
    • April 2007
    • March 2007
    • February 2007
    • January 2007
    • December 2006
    • November 2006
    • October 2006
    • April 2006
    • March 2006
    • January 2006
    • December 2005
    • October 2005
    • July 2005
    • May 2005
    • April 2005
    • April 2004