Why Does the Market Hate Google?

Echo To All submits: With a target price of +500, analyst obviously love Google (GOOG), but why does the market not like GOOG? I do not understand.

The company has done nothing but perform. Arguably their only real mess up is Google CheckOut. Google has made headway in the mobile space, video space, and continues to outperform the competitors (and let's not forget about oversees growth). Yet their competitors get a premium stock value over GOOG. Why?

Yahoo (YHOO) gets a PEG of 2.66, when it is losing search share and growth is nothing… nothing compared to Google’s. Microsoft (MSFT) has a PE of 25-26, when it is projected to grow at 12-13% in the next five years. While it has Vista, it had to completely sandbag expectations to beat Wall Street expectations. Not to mention it has done nothing significant in the internet space, at least nothing significant enough for the layman to recognize.

So GOOG’s top competitors are trading at a premium, when GOOG is trading at a PEG of about 1.06. The market is rewarding second tier companies, while punishing the best of breed. What am I missing?

Yahoo’s hope is Panama, yet all we keep hearing are promises from Terry, and see him smile once an a while. And all I hear from MSFT, in the internet space, is bashing of Google. Both nothing significant to merit a discount to GOOG.

Others will argue that there is too much optimism in Google’s stock. But where is it? Where is the optimism? It is not at its 52 week high and it is beating analyst expectations. Where is the irrational exuberance? (Because it has a price tag of 470 does not mean it is overvalued.)

I do not know what I am missing, but I am tired of hearing bad reasons for it being discounted.

GOOG 1-yr chart

Comments

[Tom B:]

Well, the high share price is surely a psychological barrier. And some people might be under the false impression that the billion dollar Viacom lawsuit has merit.

2007 May 02 08:42 AM

[huangjin:]

Market cap of $145 billion. Is GE only worth 2.6 Googles?
Ad revenues will plunge in a recession, and so will Google's revenues.

2007 May 02 08:48 AM

[Tom B:]

Maybe so, but it a recession could actually HELP GOOG, if people choose to advertise on the cheap, with GOOG, instead of using traditional media.

2007 May 02 09:14 AM

[Hayweed:]

I am stunned as well. AAPL was 95 in January and has blown out estimates two qaurters in a row and is now $100.00 Google was $510 in January and has now had two great quaters and we are down almost 10% while the market is booming. Guess the answer is why own tech when eating buffalo wings is the key to making money in this market. BWLD up 14% on 58% growth selling chicken wings in a slowing economy. This stock has doubled in the last 6 months. Go figure

2007 May 02 06:42 PM

[Tom B:]

I'm buying. GOOG's PEG, and cash, and business model look good to me.

Of course, advertising is their thing now, but I think GOOG's web apps will eventually replace Office-- and there's nothing MSFT can do about it-- MSFT will never convince anybody they know anything about data security, and, if people start "working online" more, security will become more important. Off-site data storage, IMO, will be a big business someday.

As for AAPL, I'm a long-time holder, but I feel happy enough about the way their business is unfolding that I bought a decent chunk at 85 this year.

2007 May 03 09:29 AM