Huge Google
- Thread starter Frank
- Start date
scooby_dooby
Legend
Brand name? Google has become synonymous with searching, it has become part of our vocabulary, that's huge.
Where did you get that figure? And what is it, assets? Market value? "Virtual" money? It definitely isn't cash, and i don't even think it's assets, cause that's a whole lot of money.
their market cap is only around 120billion. even at their 52 week high they only had a market cap of 144billion. Where did you get the 200 billion figure from?
epic
epic
Market cap is $121B. Why? Because Google has $8B in revenue, and $2B in earnings, with 77% quarterly revenue growth and 110% quarterly earnings growth. With those growth rates, in 5 years, they'd have between $136B and $320B in revenue. Obviously that isn't going to happen, since they'd then have almost as much revenue as the Government's defense budget.
However, for investors, it obviously means, that they are worth a high multiplier of their earnings, and will continue to be worth more until it becomes obvious that their exponential growth is hitting limits.
However, for investors, it obviously means, that they are worth a high multiplier of their earnings, and will continue to be worth more until it becomes obvious that their exponential growth is hitting limits.
Well, that's still very impresssive. I knew they did very well, but I didn't know they did so very well.
But I wouldn't rate them for more than about $20 billion for that.
Im curious how you came up with that figure?
A P/E ratio of 10 would be absurdly low for such a company. Every quarter, your "valuation" would essentially be 50% wrong. To maintain the same ratio, next year you'd have to say "I value them at $40 billion", but if there is a high probability that next year you'd value them at $40 billion, then why value them at $20 billion now? You'd be stupid not to value them at $40 billion and invest as if you think the value would be $40 billion. But two years out? Three years out?
Anyone who thinks they are going to hold Google stock for 1-3 years is going to be reasoning about their earnings 3 years from now, not their current earnings.
A valuation of $20 billion means that in 5 years, you will be valuing their market capitalization at lower than their earnings and assets.
Anyone who thinks they are going to hold Google stock for 1-3 years is going to be reasoning about their earnings 3 years from now, not their current earnings.
A valuation of $20 billion means that in 5 years, you will be valuing their market capitalization at lower than their earnings and assets.
Well, I would start with disregarding the past growth, and only look at the current income and real future economic prospects. That's pretty much the lesson I got from the .com bubble.
But I do agree they have cornered the mindshare and internet advertising market quite nicely, and still have some good growth left. That would be reason to consider buying some shares, a few $1000's worth of them.
Well, my value assesment would be to consider the worst case scenario. And when that still seems promising, I would buy.
So, actually, that's a compliment. I'm just using different rules.
Btw, what would you consider a really good investment, considering brand/mindshare prospects? I'm atm thinking building Cyberspace as I see it would be my best investment.
Well, you can certainly invest in worse case scenarios, but then, you shouldn't be buying individual equities, but bond and index funds. The minute one chooses to buy individual equities, one is no longer a worse case investor, but a risk taker, and then the question is how much risk are you willing to take. At a P/E ratio of 10 or less, there won't even be many equities to buy except for really shitty ones that will be more likely to lose you money.
All of the stocks with "good" fundamentals have higher ratios, because everyone is making the same calculation, and trying to pay a premium to get into the stock.
Sometimes, when people are getting out of a stock you can realize that the premium should still exist and that seasonable variation or market psychology is at work driving down the price.
A little while ago, NVidia was at $16, which was a seasonal drop from their average of $30. I correctly reasoned that there was no fundamental reason for the stock to be at $16 long term, especially given upcoming PS3 revenue. So I plowed $10,000 into NVDA about 2 months ago, and almost doubled my money.
All of the stocks with "good" fundamentals have higher ratios, because everyone is making the same calculation, and trying to pay a premium to get into the stock.
Sometimes, when people are getting out of a stock you can realize that the premium should still exist and that seasonable variation or market psychology is at work driving down the price.
A little while ago, NVidia was at $16, which was a seasonal drop from their average of $30. I correctly reasoned that there was no fundamental reason for the stock to be at $16 long term, especially given upcoming PS3 revenue. So I plowed $10,000 into NVDA about 2 months ago, and almost doubled my money.
Actually, Google do take a suprisingly huge amount of money in advertising revenue. For instance, they rake in more advertising money than any newspaper chain, magazine publisher or TV network. Think about that. Their main brainwave was to auction "keywords" to the highest bidder in online auctions. Instigating bidding wars for lucrative and sought-after keywords is a real easy way of driving up prices. What Google do is sell a per-click price for a keyword or phrase - popular items have been known to go for up to $10 a click. Yes, that $10 to Google every time someone clicks through via an advert on Google or their affiliates. And because Google are not selling any physical (and don't have any associated manufacturing and shipping costs) this is nearly all profit.
Google also control a huge chunk of online advertising and what puts them in a really strong position is the huge shift from traditional advertising to internet based. For instance, in the UK online advertising increased by a massive 65.6% last year. Obviously the potential for future growth is huge which, in turn, increases their worth.
QFT. I did the same thing. Didnt double my money but made a very nice tidy profit. hehe. I only invest in like a few companies: nvdia, amd, ati. I like them because they swing quite a bit.
epic
It's more complicated than that. Although the auction may be seen to drive up prices, advertisers set prices based on ROI and ROI is sensitive to publisher fraud as well as conversion rates.
Let's say as an advertiser, I am selling widgets, and I want to acquire 1,000 customers. What is the cost to acquire a customer? Well, I may go on Google and buy CPC ads for $1 per click. I may find that it takes on average, 1000 clicks to net one customer, in which case, the customer acquisition cost is $1000, so I better be selling cars or real estate.
If I were selling something cheaper, like software, I may find that the cost is too high. So therefore, I may adjust the rate I am willing to pay to 1 cent per click, in which case the customer acquisition cost is approximately $10. This is all sensitive to fraud, so if publishers with AdSense setup click farms of click robots, I might see that 1,000,000 clicks are needed to generate 1 customer, in which case, if I still wish to pay $10 per customer, I must set the price to be $.000001 per click. You can see that fraud doesn't actually hurt advertisers as much as publishers, so that someone running a clickfarm drives down the price per click and diverts ad revenue away from your legitimate site with legitimate users and content (but low number of clicks) to someone running an illegitimate site with millions of irrelevent clicks.
Thus the market price of a CPC keyword is sensitive to both fraud as well as the underlying customer conversion rate and is not purely a function of people bidding.
It is also incorrect to say that Google does not incur costs for running the ad network. First, for many clicks, they must pay publishers on the ad network unless the click occurs as the result of a keyword search on Google.com. Secondly, Google has an army of people working on their ad network which is a huge fixed cost to the company. They did not develop the network and then fire them, but they continue to employ them in the extension and maintainence of the network. When Google launched Google Checkout, about 1/3 of the company's engineers involved. With a cost per engineer over six figures, this is not an insignificant cost to them.
The reality is that although advertisers bid on keywords, most intelligent advertisers use campaign management software to optimize the ROI on ads, both to combat fraud, as well as minimize customer acquisition cost. Many ad networks also sell cost-per-conversion/sale based adds by tracking hits on your "checkout succeeded" pages. The raison d'etre of Google Checkout is to do this on a large scale as well as control ROI.
