Google Is Becoming Last Year's Apple

| About: Alphabet Inc. (GOOG)

I have pounded the table for Google (NASDAQ:GOOG) here for some time.

But with the stock now powering through $800/share, and an earnings multiple approaching 25, it's time to take some money off the table.

Google revenues remain tied mostly to advertising. Advertising is a very inefficient way to bring in business. Advertising is also tied very closely to the fate of the general economy, which while it's growing isn't growing very fast.

To justify a multiple of 25, you have to be rocking some incredible top-line and/or bottom-line growth. Google's top-line grew 25% over the last year, from $37-50 billion, but its net income only rose 10%, from $9.7 billion to $10.7 billion.

That's a nice business. But is it worth what you're being asked to pay?

It's true that Google has some good revenue streams coming online. Some of the Android products it has licensed have been hits, even monstrous hits. But how much of that revenue is coming to Google? Almost none. The company's cloud services are also doing pretty well, but thanks to a vicious price war initiated by (NASDAQ:AMZN) how much of that is coming down to the Google bottom line? Almost nothing.

Google's margins remain squeezed by its acquisition of Motorola, it still has patent problems in courts around the world, and it's still being pressed by governments and content providers.

The attitude toward Google is starting to remind me an awful lot of the attitude toward Apple last year. And Apple's multiples never reached these levels.

What goes up fast can also go down fast. When you're held up by fashion, you can fall in value faster than last year's dress. You will know that a top has definitely been reached if the good folks here at Seeking Alpha start limiting how many times we can write about Google. I'm hoping this gets in under that wire.

This doesn't mean Google has become a bad company. It also doesn't mean it's heading to $250, which is where an earnings multiple of 10 might leave it.

But nothing goes straight up and stays there. I've taken a little money off my Google table, and I'm going to wait for lower levels before re-investing. It's likely that if you have a five-year time horizon you can still come good at these levels. But I'd say the same thing about those who bought Apple (NASDAQ:AAPL) at $600.

Disclosure: I am long GOOG, AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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