Comments on: Google Stock Looks Cheap, Believe It or Not

By: Chad Brand

Chad Brand — Mon, 14 May 2007 13:57:00 +0000

Just because things change in technology doesn't mean Google will be replaced at some point. Intel, Microsoft, Oracle, Cisco, etc have dominated continuously despite the ever-changing technology landscape.

I agree that the ad business is cyclical and Google will certainly be affected in a recession. However, we have a medium (online advertising) that is becoming a bigger part of the overall ad market.

Right now, online ads represent 5% of total ad spending. That is projected to grow to 9% by 2011. We don't know what the number will be, but increasing online market share (due to more people spending more time online) will likely more than offset companies pulling unprofitable campaigns. I'm sure some firms have already done so, and it hasn't been noticeable because the whole market is growing so fast.

Besides, markets are based on supply and demand. As the online market grows, there will be more bidders for keywords, not less. More demand will lead to higher keywords, not lower ones. An economic downturn will hurt, but investors know how to value cyclical companies. The stocks won't be valued on trough earnings power because recessions are very rare.

There is no guarantee Google will continue to be the leader in 5 or 10 years, but it's not like investors are paying a lot for the stock. I don't think paying 24 times 2008 EPS for a company with this type of growth potential is, as you say, gambling with clients' money. If I was paying 50x that would be a different story.

Time will tell.

By: Anonymous

Anonymous — Mon, 14 May 2007 13:38:00 +0000

I think you are gambling with clients’ money. Remember that before Google, Yahoo was king and that before Yahoo, Altavista ruled. Netscape was huge before Microsoft started giving Explorer for free and then dominated the brower market. Things change fast in technology and Internet.

Let me also mention a trend going on with Internet advertising. Lots of old economy companies (including the one I work for) are rushing to online ads to try things out and not be left behind. Many big companies are experimenting with only 1 search engine (normally Google). Initially senior management is willing to sponsor these new initiatives at a loss, but eventually it has to stop. (Again, I’m seeing this in the company I work for). Advertisers have bid many keywords at Google to prices much higher than in Yahoo and others. This would only make sense if Google’s clickthrough rate was much higher, but it isn’t.
Finally, the customer acquisition cost via online ad for some industries is getting high versus other media (radio, billboard, etc.). I predict that keyword prices will go way down with a downturn in the economy. Ad rates on newspapers and TV have always gone up and down with the economic cycle, it should be no different with the Internet.

By: Anonymous

Anonymous — Mon, 14 May 2007 06:35:00 +0000

If googlebear is right, I’ll watch it go lower and grab it at the lower price and hopefully at its bottom, as “wheels of ire” is quite right.

Shorting the stock is tempting, but the middle east climate is still unstable, as the U.S. and Iran’s sabre rattling grows louder.

By: Wheels of Ire

Wheels of Ire — Sun, 13 May 2007 16:13:00 +0000

Even should googlebear be right about an imminent recession,only dumb companies will slash ad budgets. Smart ones will want their ad spend to work harder,which is where Google will come in. Being able to measure results is the winner,as the effects of ad campaigns are famously hard to measure.

By: googlebear!!

googlebear!! — Sat, 12 May 2007 16:45:00 +0000

Google overpriced I predict a collapse to $250 a share…..the economy is heading for a recession and ad spend ill be cut. So you google bulls watch out I’m gonna short google and grab you cash!!!

By: Chad Brand

Chad Brand — Fri, 11 May 2007 16:10:00 +0000

I completely agree. Let’s hope they can leverage those resources into new profit avenues outside of search.

By: Anonymous

Anonymous — Fri, 11 May 2007 15:53:00 +0000

I have a hard time looking into the future but I can tell you that Google is a dominant company in ways other than search. As a programmer, I am constantly reading about the innovations at the company. They put a lot of emphasis into recruitment and retention of employees. Essentially, it seems that it is most young, talented programmers highest motivation (next to starting their own company) to work for Google.

The company is about as decentralized as possible in order to foster a startup-type culture. Employees are allowed to work 20% of their time on projects of their own choice. Creativity and risk-taking is encouraged.

All of this bodes well for the company going forward.