Thursday, June 09, 2005

$80 Billion ?

It seems that almost every day I hear someone talk up the merits of Google. Often the individual is commenting on the price of the stock, and how it just has to go higher, because it's worth every penny. I like Google. But I didn't buy their shares at the opening, at $100, at $200, and certainly not now.

Here's one reason. Today Google has a market cap of approximately US$80 billion, give or take $1B ( !!! ). In comparison, AOL Time Warner, which had 14x the revenue last year has a market cap of $80B. These are both media companies. AOL-TW has a much larger reach between its online and offline business, and should therefore have a much larger historical base of advertisers to work off of. What justifies the fact that both firms have almost identical market caps? Let's not forget, AOL is a large distributor of Google's search results, and advertising. Is AOL TW seriously undervalued, or Google overpriced? Or a combination?

Perhaps Google's stock price is fair? In hindsight, I wish I had bought shares AND sold them - I'd have made some easy money. The market is always right, after all. But how much of its stock price is actually the result of over-eager daytraders who are buying into the myth?

Anyhow, like everyone else in this industry, I'll keep watching their stock, and hoping it doesn't blow up in all our faces one day. The industry, and the market, don't need it to become the new dot-bomb. There is no reason it should, but market perceptions may be hard to manage if / when the stock price gap over earnings starts to slide back to more traditional values.