John Lazerow

Google's Miss: A Wakeup Call For Investors

Google has always invested massively to get their revenues, it's just that the law of large numbers is catching up. Their profit margins still are pretty darn good. Back out the bonus accrual accounting (which I now see at around $60mm) and the earnings look even better. The good news is they can control many of these "margin" issues. Hire a few less people, spend a few less bucks on infrastructure. I think these issues will take care of themselves as they get their worldwide infrastructure in place and then can increase margins moderately. This will begin to be evident when they report earnings next quarter and the accounting change isn't there AND they hire a few less people. I prefer to give up short term margins on the back of investment for long term success. Let's check back in 90 days.

Google's Miss: A Wakeup Call For Investors

A (theoretcial) miss of 33 cents, or roughly $100 mm on earnings - I would love to see how much that change in bonus accrual methodology was and how many more people they hired than originally planned. The top line growth still is there and to worry about a few cents when they are investing heavily for the future is somewhat myopic. This thinking will cause you to miss another great buying opportunity - just like missing RIMM 100 points ago.

Is Google the Next AOL?

Priced to domination? Have you looked at Google's growth rates compared to it's PE ratio? I see 34x 2007 First Call consensus earnings and last quarter earnings grew at about 60% - that equals about a 0.5 PEG ratio. Look at Yahoo trading at 55x 2007 earnings estimates and growing at not even half of that. And throw in the fact that Google invested $600 million in infrastructure AND hired 1600 people in the last quarter alone and they have plenty of levers to pull should growth slow.

The comment that Google should only "focus on earnings and not on senseless innovation that might be cool, but doesn’t fit into their business model." speaks volumes to your misunderstanding. If you have ever listened to a conference call you will know that their strategy is to put roughly 70% of their efforts into their main Ad business and roughly 30% into other ventures. Investors should love hearing this. You get a great Ad business at a great valuation AND an innovative think tank that will come up with some great commercial technologies.

Citibank should think twice about hiring you.

Google May Finally Have Grown Into Its Britches

Last quarter they grew at 60% AND invested majorly - $600 million in infratsructure, 1600 new employees in the quarter alone. Not only are they growing much faster than the market is giving them credit for, but they have levers to pull, and ones they can control, should the topline slow down a bit (i.e. not invest $600 mln or hire fewer people). Any stock trading at roughly a 0.5 PEG and is in a secular growth market looks good to me!