Google's Inflated Market Cap Not THAT Amazing

Art Chang is amazed that Google's (GOOG) ($616.32) market cap now exceeds Time Warner (TWX) ($19.10), Disney (DIS) ($35.39), and News Corp (NWS) ($24.48), combined. He's right to be amazed but when you think about it from the point of buying a business it's not that amazing.

Google is in a growth business. Those other companies are not.

At 30 times next years earnings Google is a bargain compared to most companies with its growth rate. However, their profits are all search. At some point a better product will come along. The question, will Google have diversified enough by then.

Disclosures. I do not own Google (GOOG), Time Warner(TWX), Disney (DIS) or News Corp (NWS). Of the three I'd rather own Google but all of them have too much downside. I would look at TWX, DIS, or TWX if they were much cheaper. They all look like fully valued, value stocks right now.

I have traded Google both long and short in the last two years. I also bought google the day of the IPO at around $95 and sold at $165. (way too soon!)

Comments

[Tom B:]

"At 30 times next years earnings Google is a bargain compared to most companies with its growth rate. However, their profits are all search. At some point a better product will come along. The question, will Google have diversified enough by then."

Exactly correct. I was a total Google skeptic initially. Search? Who Cares? Then I realized what their real business was- advertising-- and that that there are no emerging competitors.

Emerging competitors would have a high barrier to entry-- very high. The place where GOOG can slip is buy overreaching. If they launch a "Gphone", as suggested by the rumor mill, they will take a huge hit, because they will be entering a business that is consolidating around the iPhone. It would be madness.

2007 Oct 11 09:09 AM

[GRiddick:]

Good morning, David

I think I represent a minority of folks out here who have an entirely different view of Google than you, and most other financial journalists and analysts, I follow these days.

You see, you continue to report on all the phenomenal upside of this thing they call "google" ... yet you completely ignore the more predictable downside. This misleads investors in my view, and leads to the type of things that happened back in 2000.

The little old ladies in Omaha end up holding the bag.

Google, for years, has written its own rules. Its rocket scientists invented a new moral compass owned and operated exclusively by a select few inside Google .. and several of their lawyers, investment bankers, and venture capitalist friends as well.

They rob from the middle class and give to the poor ... and others in the middle class .. and to the rich ... and to themselves. Over and over again. Google is one of the most flagrant copyright infringers on the planet. Day in and day out ... millions of times a day ... every day.

Not everyone plans to sell out and settle with Google, as they apparently see all of this "shaking out".

And if you don't think a misguided moral compass, unethical business practices, corporate arrogance, hypocrisy, and greed can bring down someone as mighty as Google, you might want to think again.
Can you spell ENRON?

David, I would never make such a claim without substantial proof of what I say. I'd be happy to review our research, and our extensive documentation, with you in more detail if you ever decide to tell your readers the flip side of the Google story. The true side.

George P. Riddick, III
Chairman/CEO
Imageline, Inc.

[e-mail]...

2007 Oct 11 10:39 AM

[Sr. Pessimist:]

I think two things. First, there's a lot of money from a dissipating capital bubble that has nowhere to really go. The mortgage crisis is making money men panic and run, and there's a lot of free-floating evil dough ready to clinch onto anything fad like Google. Second, there are free search engines people can install on their own websites. It's not much to go a step further and make ads that can match search, eliminating the middle man, Google. Ballmer said Google's growth strategy is insane. I think so too because, as it mentioned in the article, all the money comes from Google being a great search portal, and that's inherently volatile. Too much concentrated in just focus.

2007 Oct 11 09:44 PM