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The Internet Businesses Google

Another Internet Stock Price Bubble Building? 320

Posted by Zonk from the pop dept.
Anonymous Coward writes "The Economist has a column looking at the valuations of some of the Internet's darlings, with a particular emphasis on Google. From the column: 'Valuations are, in fact, better founded than many of them used to be. But around 50 times next year's expected profits is still quite a leap of faith. At the levels seen in recent days, the price of Google's traded shares implies that it is the world's most valuable media company, with a market cap comfortably in excess of Time Warner's $76 billion, even though the latter had $42 billion in sales last year to Google's $3.2 billion. True, Time Warner's business is increasing at a snail's pace compared with Google's. But putting so high a price on future growth only makes sense if all's for the best in this best of all possible worlds. And it isn't.'"
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Another Internet Stock Price Bubble Building? More

Another Internet Stock Price Bubble Building?

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  • Worth it (Score:4, Interesting)

    by FTL ( 112112 ) * <slashdot@neil.fras[ ]name ['er.' in gap]> on Saturday July 23, 2005 @01:29PM (#13144632) Homepage
    > At the levels seen in recent days, the price of Google's traded shares implies that it is the world's most valuable media company, with a market cap comfortably in excess of Time Warner's $76 billion, even though the latter had $42 billion in sales last year to Google's $3.2 billion.

    I don't know about most people, but if Time Warner went bankrupt tomorrow, I would not notice (beyond having to delete channels 33&44 (CNN) from my grandmother's TV). Whereas if Google went bankrupt tomorrow, I would honestly be devastated. Heck, even my grandmother would be upset, she'd wonder where "the Internet" went. Granted, the vacuum would be filled very quickly by one or more entities.

    Google also have an unusual combination of being both a) at the forefront of its market and b) good and ethical. Contrast with companies like Microsoft (forefront and evil), companies like Apple (distant second and good), and companies like SCO ('nuff said). Name another company that's both #1 in market share and #1 in user respect...

    Google's worth every penny of its valuation.

    • Re:Worth it (Score:5, Informative)

      by Blue Neon Head ( 45388 ) on Saturday July 23, 2005 @01:36PM (#13144663)
      You seem to presume that a company's value can be measured in terms of your personal experience with it. In fact, there are many companies which, if they went bankrupt tomorrow, would not be noticed by you, but nonetheless bring in good profits and offer strong growth.

      And a company's valuation has as much, if not more, to do with how well it is managed as how well its products are received. Google's popularity says they can bring in revenue, sure, but if Google's management is deficient, it doesn't matter how popular its services are; as a company, it's a bad investment.

      • Re:Worth it (Score:3, Insightful)

        by brunes69 ( 86786 )

        You seem to presume that a company's value can be measured in terms of your personal experience with it. In fact, there are many companies which, if they went bankrupt tomorrow, would not be noticed by you, but nonetheless bring in good profits and offer strong growth.

        I don't think this is the point the parent was trying to make. The point they are trying to make is that, as the gatekeeper of the internet, a valuation of 50 times next years profits may not be that big of a gamble. As more and more daily

        • In addition, there's also some sort of assumption that companies that operate in different spaces should be subject to the same valuation terms. That's historically been proven to be totally inaccurate. Companies tend to be measured in relation to their peer group. For example, the energy industry tends to trade at multiples larger than the auto industry, despite being pretty strongly linked. There's more to a valuation than the P/E or even the forward P/E.

          As you've pointed out, Google has clearly in
        • At some point, AOL was considered gatekeeper of the internet. It's what Time Warner thought anyway.

          A healthy dose of scepticism is exactly that. Healthy.
    • I think you need to look a little more deeply into what TWX owns before making such a cavalier statement. I suspect that you would notice, you're just not aware of how right now.

    • Re:Worth it (Score:5, Insightful)

      by missing000 ( 602285 ) on Saturday July 23, 2005 @01:43PM (#13144712)
      I'd take a look at this list [wikipedia.org] and reassess.

      One interesting note is that TW broadband would disappear, as well as AOL, mapquest, nullsoft, and netscape. The internet would certainly notice.

      But let's look at entertainment...

      HBO, Warner Bros, and The Atlanta Braves.

      Last I checked, google makes all their money in one place. They are good at it, but they are not Time Warner in any way.

      • Re:Worth it (Score:2, Interesting)

        by GNUALMAFUERTE ( 697061 )
        TV Channels, who cares about TV anyway besides the illiterate masses?

        Mapquest?, there is google maps.
        AOL, the worst ISP ever?
        nullsoft, a proprietary solution, when you have got XMMS?
        Netscape, when it's based on Mozilla? ...

    • Re:Worth it (Score:2, Funny)

      by dextroz ( 808012 )
      Correction: Apple - greedy and condescendingly good...

    • Re:Worth it (Score:2, Interesting)

      by bheer ( 633842 )
      Actually, it isn't. Google offers nothing that cannot be cloned by MSN or Yahoo within a year (and they have a userbase that's quite attached to them, esp Yahoo). Watch out for Yahoo's Oddpost-powered Yahoo Mail refresh and MSN's new Hotmail to beta this quarter.

      The way I see it, Google's value is in its ability to be a disruptive innovator in the marketplace and make some money off its first-mover advantage. But its success at monetizing its first-mover advantage (almost exclusively through Adwords) has

      • Re:Worth it (Score:5, Interesting)

        by po8 ( 187055 ) on Saturday July 23, 2005 @02:03PM (#13144819)

        "Google offers nothing that cannot be cloned by MSN or Yahoo within a year."

        Wrong. They own a pile of really skilled Ph.D.-level employees, and are hiring them at a rate unprecedented even during the glory days of Bell Labs and IBM. Google has bet the farm on the idea that putting some of the nation's smartest people in a productive work environment will make the company money. Essentially, they've taken a long position in Ph.D. futures. So far, the gamble seems to have paid off. Google has been launching services with big upside potential and low risk at an incredible clip, and the market has rewarded them for it.

        I've been saying for 15 years that CS Ph.Ds are massively undervalued by the market. (Disclaimer: I have one now.) I personally think Google is about to demonstrate the truth of this proposition. But win or lose, at least it's an interesting business model.

        • "Google has bet the farm on the idea that putting some of the nation's smartest people in a productive work environment will make the company money."

          Nah, put an even number of PhD's in a room and they cancel out. You either have to put an odd number of PhD's in the room, or lots of PhD's and a common sense manager to throw half of them out and to know which half to throw out!

          The good thing about Google isn't the PhD's, its that it lets its people do stuff. Large companies generate an inertia because the p

        • Re:Worth it (Score:4, Interesting)

          by po8 ( 187055 ) on Saturday July 23, 2005 @04:15PM (#13145463)

          Folks' ideas of what a (good) CS Ph.D. is are really cracking me up, and are at the heart of why they are IMHO undervalued by industry. Have any of the respondents actually worked with a group of Ph.D.-level CS folks for any length of time? It sure doesn't sound like it. I've worked in almost every computing context you can imagine, and the Ph.D. research groups are the scary-best bunch of them all.

          It's certainly true that Ph.D.s often require care and feeding, and are sometimes a lousy fit for mundane programming tasks. But those tasks aren't what is driving Google's new ventures: it's innovative ideas, conceived and implemented by a team headed by incredibly clueful people. This is what Ph.D. researchers are skilled and trained to do.

          I recently consulted for a growing company that had been stagnating in bringing a tech app online for several years. I came in and in about 4 months solved a bunch of business and organizational problems, rewrote a bunch of their code to be 10-100x more efficient yet much simpler, and got them on the road to profitability. I don't think those folks will be saying anything bad about Ph.D.s anytime soon.

      • YHOO's currently doing about $35 where GOOG's doing $300. Sure there's a premium on perceived Google's tech superiority, but it's probably worth 2x or 3x YHOO. 10x does not make sense, long term.

        It is clear from that statement that you don't understand stocks. Berkshire Hathaway is trading at $83,710 a share. The company which I started in my apartment back in 1998 is worth $1500 a share. The value of a stock per share means absolutely nothing without looking at the number of shares.

        My company only i

    • I don't know about most people, but if Time Warner went bankrupt tomorrow

      Oh you would definitely notice. Do you have any idea how many publishers, movie studios, record laels, TV production companies, cable companies, etc. are "A Time Warner Company". Yes they all have varios different names so they can be marketed at different population segments in different ways, but they are all Time Warner.

      No seriously. Here's a list of Time Warner holdings [ketupa.net]. Take some time to skim through it, then tell me again

    • Re:Worth it (Score:2, Informative)

      by licamell ( 778753 ) *
      From http://en.wikipedia.org/wiki/Time_Warner#Businesse s [wikipedia.org] with info on some companies that Time Warner owns.

      The following enterprises are part of Time Warner:

      • I'd miss Mad Magazine. Not that I read it anymore, but my kid might soon. Three months ago I would have missed MapQuest, but (I think this is on-topic) I just switched over to Google Maps for most everything. Shrug.

    • Re:Worth it (Score:3, Insightful)

      by Helter ( 593482 )
      I'm impressed... you managed to put together an analysis of Googles valuation without considering *anything about it's actual value*.

      You should be a broker "well, the P/E is through the roof, and the market is already getting shaky, but they're good guys. I'm recommending a buy".

    • Re:Worth it (Score:2, Insightful)

      by ta ma de ( 851887 )
      Google is overvalued. The question people should consider, is google really worth more than Wal-Mart, GM, GE, Microsoft, Lockheed, IBM or Coca-Cola? Philosophically, sure. Considering their current revenue model, will they become the largest company in the world? I think not.
    • Whereas if Google went bankrupt tomorrow, I would honestly be devastated. Heck, even my grandmother would be upset, she'd wonder where "the Internet" went. Granted, the vacuum would be filled very quickly by one or more entities.

      Riiight. Now, let's replace "Google" in that sentence with other hot internet destinations that have fallen from grace. AltaVista? Webcrawler? Yahoo? Hotmail, even?

      Hardly anything Google does is unique. It may be preferred by many, because its search engine is cleaner, its ads le

    • Re:Worth it (Score:3, Insightful)

      by canuck57 ( 662392 )

      Whereas if Google went bankrupt tomorrow, I would honestly be devastated.

      No you wouldn't be devastated, you would switch to one of the other search engines so fast a few hours later you would forget about it. I have been in this business long enough that everything goes in cycles. Google is at the top of it's game.

      But Google does have a good game, for the moment.

    • Re:Worth it (Score:2, Interesting)

      by jondt ( 870495 )
      Unfortunately the metrics you use don't map to decent future earnings - which determine the price of a stock.

      Microsoft is guaranteed future earnings as it's unlikely - in the near future - to move anywhere away from #1. Businesses have systems that are locked down to the MS platform. The *vast* majority of users are tied down to Microsft products through the - often not very transferable (or at least at first sight) - skills they have learnt.

      Apple a distant second? Don't forget that the majority of its r
    • Google also have an unusual combination of being both a) at the forefront of its market and b) good and ethical.

      I love how everyone likes to put Google in the good and ethical category. Why is that? Because they use their money to buy up smaller companies and then offer their software for free (Keyhole, Picasa) to kill the competition? I remember another company that used that same strategy, I think they were called Microsomething..

  • Comment removed (Score:4, Interesting)

    by account_deleted ( 4530225 ) on Saturday July 23, 2005 @01:35PM (#13144654)
    Comment removed based on user account deletion

    • Advertising pays (Score:3, Informative)

      by brunes69 ( 86786 )
      "Billboard companies are great, but they don't charge you to look at them. I guess the question is how long they can survive on their advertising alone."

      Google can survive on advertising alone as long as they attract lots of eyeballs, and can thus charge lots of money.

      Aside from that - Google has other revenue streams. They sell search appliances and services [google.com], they license products to other companies (see CNN's use of Keyhole aka. Google Earth).

      • Absolutely they can survive and indeed make a healthy profit on advertising alone. However, when they have about half the market already in web search, they can't possibly continue the astronomical growth they've enjoyed to date in that field, and that's what the speculative investors are (probably naively) expecting.

        They will inevitably have to find other markets that can grow to the same sort of level to maintain the growth of their stock, and I doubt they're going to beat the number one web-based activ

    • "Companies had lots of great ideas, but the problem came about when trying to actually make money on those ideas."

      Um... Google is making money. Lots of it, in fact.

      "Google is a wonderful company, but problems seem like they're going to arise as they get bigger and bigger and create more and more products, but don't charge for anything. As great as free stuff is, it doesn't pay the bills."

      Actually, the reason Google is making money is probably that the services are free. If they charged for the

    • 3.2 billion takes you pretty far...

  • Dutch saying: 1 zwaluw maakt nog geen zomer (Score:4, Informative)

    by jurt1235 ( 834677 ) on Saturday July 23, 2005 @01:35PM (#13144655) Homepage
    What means: 1 trekking bird does not make it summer

    The difference with the Internet bubble is that the companies talked about are growing, have a real income base and most of them profit. So even if there is a bubble building, when it bursts, it will not be of the same magnitude, there is a clear bottom (like 15 to 20 time the expected or real profit).

    BTW: With googles market cap, can't they buy Warner and get the basics that way better?

  • Hopefully not (Score:4, Insightful)

    by mfloy ( 899187 ) on Saturday July 23, 2005 @01:38PM (#13144673) Homepage
    Google included, a number of these stock prices are based on future earnings, not current earnings. The prices may seem rediculous (when looking at their P/E), but hopefully they should fix themselves as their earnings increase. The problem is that people think 300 bucks a share is what they are worth now, and may continue driving the price up, until to bursts.
    • That is exactly the reasoning that caused the dot bubble in the first place. I think Google's high price is a good wake up call to investors that they are likely over valued. Google may succeed, but investors are betting that they will succeed above where they are like a homerun.

  • I wouldn't put too much stock into Google. Not after watching how MSN Search is growing off on the horizon...

  • Valuation is in the beholder's eye (Score:5, Insightful)

    by DoctoRoR ( 865873 ) on Saturday July 23, 2005 @01:41PM (#13144693) Homepage
    The arguments for these high valuations (and Yahoo!, at around 60 times expected profits is right up there too) all boil down to one: the growth in internet firms' business reflects a secular shift that is broadly impervious to economic cycles and has a long way to run.

    I disagree with any premise that a huge market prices stocks using one valuation criterion. Are internet leaders priced high because they aren't affected by economic cycles? That's not why I invested in some of them in the past (and one of them now). How many employees does Time-Warner have? How many does Google to return those kinds of profits? As computers get faster and cheaper and seep into every nook and cranny of our society, who is in better position to explore new markets in profitable ways?

  • What about the real estate bubble? (Score:5, Insightful)

    by __aaclcg7560 ( 824291 ) on Saturday July 23, 2005 @01:41PM (#13144696)
    Bubbles come and go on Wall Street all the time, and it really doesn't matter to them as long as Joe Blow Public takes the blowout so they can rake in the fees. I would think that the real estate bubble (if it is a bubble) might be more serious since a blowout would hurt Wall Street first (many brokerage firms are also involve in real estate finances). You can't rake in the fees if your house is on fire.
    • Bingo. The real-estate bubble will be the great depression all over again if it bursts. We are teetering on the edge of disaster. In san diego and orange counties (california for thsoe who don't know), the average price of a house is around 600k... About 15% of the residents can afford to finance that.

      Which means a lot of very risky loans have been written. When the economy slows down (which it will we have *VERY* bad fundamentals), those lonas will come crashing down, the foreign investors who have been financing our debt-financed economic boom will pull out their money, and we'll have the bank runs and ruin of the great depression. I hope not, but it could very easily happen.

      • ...and the resulting crash will cause everything west of the San Andreas Fault to slide into the ocean. :-)

  • Benjamin Graham is dead... (Score:5, Funny)

    by Milo77 ( 534025 ) on Saturday July 23, 2005 @01:43PM (#13144714)
    ...the stock market will climb higher, and higher, and will never crash. You'd be crazy not to dump your entire life savings into the stock market in general and google in particular. We're all going to be rich!

  • Cult Stock (Score:5, Insightful)

    by CaroKann ( 795685 ) on Saturday July 23, 2005 @01:50PM (#13144754)
    Google is a cult stock. People buying Google don't care about any valuation calculations or reason.

    They simply want to buy Google because it's Google, it's cool, and its the "Next Big Thing!"

    I'm reminded of Krispy Kreme, Yahoo, Cisco Systems, and the optical equipment companies such as Bookham and Corning, all of which still trade well below their peak.

    • This is exactly what causes market bubbles: irrational behavior. It is usually pretty easy to not lose money in a bubble stock like this, if you're willing to put aside the excitement of buying into this company. Look at fundamentals and the chance of future success. Not from a technical standpoint, but a business one. Don't buy a stock with a P/E ratio of 120 or something insane like that. When it comes down to it, all that will sustain a stock price going forward is money coming in the door. Not too many

    • Google is a cult stock. People buying Google don't care about any valuation calculations or reason.

      I bought Google because it was undervalued. I looked at the next years earnings, looked at the growth rates, looked at the rest of the industry both in the present and in the past, and set a value of $250/share. It met and exceeded that target, and I wrote a covered call for $250/share. Then it announced amazing earnings, and I recalculated everything, and now I'd put it fairly valued at $280/share. Wis

  • Profit quadruples, but less than last quarter (Score:3, Insightful)

    by fuzzy12345 ( 745891 ) on Saturday July 23, 2005 @01:51PM (#13144763)
    Google's profit was recently reported as having quadrupled, compared to the year earlier quarter. W00t!

    But if you compare it to the immediately preceeding calendar quarter, it was down. When you're big enough that seasonal trends are a bigger part of profit variability than growth, you're not a wild growth stock anymore.

  • Recommended Reading (Score:4, Insightful)

    by maioriel ( 660842 ) on Saturday July 23, 2005 @01:54PM (#13144770)
    Benjamin Graham w/commentary from Jason Zweig -
    The Intelligent Investor
    http://www.jasonzweig.com/ [jasonzweig.com]

    Warren Buffett's teacher and the father of value investing would probably not recommend this stock to buy. If you had bought it when it first listed that would be a different story but it's really dangerous to buy now.

    Another recommended read:
    Common stocks & uncommon profit - philip fisher
    This is the father of growth investing
  • There's no such thing as a bubble, just a time to invest and a time to get out. If you follow the fads you'll sooner or later miss the train and end up with nothing, in the current culture people always rush to get money, so everyone rushs and the prices go sky high. 6 months later everyone goes "oh time to take the money and put it in the next one". It goes on and on untill some huge event which kills all the sheeps money in 1 big go.

    Stay away from fads and trends and a "bubble" will never effect you, fol

  • This isn't your father's Internet bubble (Score:3, Interesting)

    by Dachannien ( 617929 ) on Saturday July 23, 2005 @02:03PM (#13144822)
    This time around, the large P/E ratios for Google and kin are based on actual earnings. In 1999, most of the Internet stocks weren't even making profits yet, and the huge P/Es were based entirely on ephemeral earnings estimates. But now, Google made $1.29 per share this past quarter (ignoring stock option expenses, which, by the way, will be of lesser impact in subsequent quarters), and is projected to make as much as $8 per share in 2006.

    Once the growth projections taper off, the stock price will decrease off its highs, but for now, Google is slightly conservatively priced.

  • Irrational Exuberance? (Score:5, Insightful)

    by CodeBuster ( 516420 ) on Saturday July 23, 2005 @02:05PM (#13144831)
    The article was bang on when it asked how a company with annual revenues of 3.4 billion can have a fundamentally higher market capitalization than companies which revenues in the $74 billion plus range? Where is the money? Are the Google shareholders receiving a dividend? How much is the IP really worth in licensing, advertising, and other revenue streams? The technical side of Google appears to be quite sound, but from business perspective their nose bleed share prices are not backed up by the realities of the corporate balance sheet. The current price of the shares, ~50 times annual earnings, has already PRICED IN an expected growth rate of 25-30% which means that unless Google can better that expected performance the share price is not justified. I work in the IT industry and I appreciate the services that Google provides, but the current share price looks like a come-on to a sucker bet. There will be a painful adjustment in the future and it will be interesting to see which big investors are left without a chair when the music stops.
    • Profits matter, not revenue. A company that makes a profit of $1million with sales of $20 million is far more preferable than a company that sells $75 billion worth of stuff but barely manages to squeak a profit.

      Still, I agree with your main premises.
    • It could be 'Irrational Exuberance' but it could also be something else. It's just possible that whoever wins the Home Page/Search market will achieve defacto monopoly status. The value of being _first_ for _mostly_ people in a mature information age is huge. There is likely a lot of highly leverage investment insurance in Google because if (when) the information age market matures whoever is leading will be the winner and realistically unassailable until somebody rewrites the rules for the next big thing

    • The article was bang on when it asked how a company with annual revenues of 3.4 billion can have a fundamentally higher market capitalization than companies which revenues in the $74 billion plus range?

      Expenses are part of the reason, and growth is there too, but debt is probably the biggest part with regard to Time Warner. AOL Time Warner has $60 billion in debt. Google has none. Even if you add back its tangible assets, TWX is still $20 billion in the hole. A rise in interest rates, along with a do

    • However, just on the virtue of the irrational increase of the Google stock price, the Google stock becomes an ideal vehicle for making money. They're not investing in Google. They're gaming a phenomenon. As long as one has a large amount of idle capital, and as long as one has the discipline to bail, even well before the peak (it's greed that causes people to stay in long after it's ceased being wise), then one can make buttloads of money. And who loses are usually institutional investors.

      Of course, th

  • South Sea/Google/Double Bubble (Score:3, Insightful)

    by Quirk ( 36086 ) on Saturday July 23, 2005 @02:16PM (#13144877) Homepage Journal
    Looking at the original South Sea Bubble [wikipedia.org] it's fair to say what predominantly characterizes investment bubbles is unwarranted, great expectations. The expectations are unwarranted in that they can't be adequately quantified and, thus, rigorously examined.

    The Dot Com bubble exhibited the same feeding frenzy behaviour. No one really knew the potential of the web, but every wanted in, and, the more the better. The collapse of the Dot Com bubble reflected, not only unwarranted investment behaviour, but the fact that the web couldn't deliver in a timely fashion, not too mention the bloated, vapour ware companies backed by wildly speculative VCs.

    What we may now have is a Google Bubble. While investors may not be ready to reinflate the Dot Com Bubble and speculate wildly on the web as a whole, they might be ready to invest wildly in a darling of the web like the, do no evil, just too cool, Google company.

    Me I'm gonna stick with Double Bubble and good 'ol Pud.

  • Because the Republicans in control are happy to let the rich get even richer (ratios not seen since the 1920's), there is a lot of spare money floating around seeking investments. However, there is not a lot that looks promising to the investors. Thus, they chase after the few stocks that look semi-promising, and this is where the Yahoo's and Google's fit.

    Also, every 15 years or so a new "Next Big Thing" usually pops up and attracks a hell of a lot of investors. But the NBT hasn't appeared yet so the cash

    • Re:Missing "Next Big Thing" (Score:5, Insightful)

      by winkydink ( 650484 ) * <sv.dude@gmail.com> on Saturday July 23, 2005 @02:23PM (#13144915) Homepage Journal
      I believe there was a Democrat in the White House during the entire Internet Bubble.
      • I believe there was a Democrat in the White House during the entire Internet Bubble.

        But there was a Republican-controlled legislative branch. IIRC, the "rich ratio" started climbing in the 80's, stayed where it was at during the Clinton era, then started climbing again in the W era.

        The dot-com bubble was kind of a freak event anyhow. Those kissing the P/E edge should know better by now, or at least should not be surprised when things go south. It is probably one of many stocks in a big, diversified por
      • I believe there was a Republican in the White House during the entire time the Internet Bubble burst.

    • The position with Goggle is identical to what can be seen in the market as a whole. Essentially rampant stock inflation. It is basic economics, shares are scarce resource and the 'market' has an essentially unlimited money supply through paper debt and near limitless leverage through options. The value of the market is one giant bubble.

  • Financials? Who reads those? (Score:4, Insightful)

    by tyates ( 869064 ) on Saturday July 23, 2005 @02:27PM (#13144939) Homepage
    Google's not the kind of company where investors read financial statements or annual reports or do a valuation. Otherwise, they'd ask themselves why Google trades for 45x forward earnings, when you can pick up just about any oil company, and get a dividend too, for 10x.

    • Google's not the kind of company where investors read financial statements or annual reports or do a valuation.

      Let's see. I'm a Google investor, and I do both constantly.

      Otherwise, they'd ask themselves why Google trades for 45x forward earnings, when you can pick up just about any oil company, and get a dividend too, for 10x.

      It's a very simple answer: growth. You can't just look at P/E ratios without looking at growth. If you do you'll be stuck with mediocre returns.

      I've got some dividend stock

  • this is a basic matter of money (Score:4, Informative)

    by mstone ( 8523 ) on Saturday July 23, 2005 @02:31PM (#13144963)

    In The General Theory of Employment, Interest, and Money, John Maynard Keynes laid out the big picture of 'value': When you look at an economy as a whole, you see that money flows from one place to another, then back again, making cycles. The question of value isn't whether one thing is intrinsically more worthwhile than another, but whether it has the power to pull a higher concentration of money into a given part of the system.

    Along with that goes the idea that the overall value of money is based on people's willingness to use it. There are simple abberations.. put too much currency into an economy and you get inflation, restrict the flow of currency too much and you get a recession.. but even in a more or less balanced economy, people have to decide whether to spend their money on X today or Y tomorrow. Those decisions determine both where the cash goes, and how much buying power a unit of currency has.

    Boil it all down, and you get the idea that 'wealth' is strongly tied to people's willingness to invest in the future.

    Time Warner may be big, but is business model is old, well, understood, and frankly, not so healthy. Information on the internet competes with information managed by traditional media companies, and the differences in distribution models, usage models, and cost of entry are playing hell with prices in the traditional sector.

    Google may be an unknown, but it's demonstrated its ability to make actual profits while distributing information on the internet. People are willing to invest in that model of the future, and that makes Google valuable.

    Are people overestimating the potential value of the internet-information market? Possibly. But this time they're investing in a company that makes actual profits, as oppsed to the last dotcom boom, where people invested in the idea that 'branding' was synonymous with future profits.

    If it turns out that Time Warner's $42B/year market dissolves into an internet information market worth, say, $8B/year, the investors who've bet that Google's cap will reflect current market conditions will lose money, and Google's stock price will go down. But it will happen slowly, as investors gradually work out the real value of the new information market. It won't be a cascade-failure like last time. At very least, there's no reason for Google's shares to drop below the reasonable value for a company that earns $3.2B/year.

  • Isn't Microsoft planning on putting a search bar for thier MSN search engine right on the desktop? What would happen then?

    NOTE: I could be wrong.

  • != inflated stock; deflated dollar. (Score:3, Insightful)

    by aphor ( 99965 ) on Saturday July 23, 2005 @02:43PM (#13145028) Journal

    One product of a massive income gap is that the winners, flush with cash, have less and less stuff to buy with their cash as investment assets become scarce. Everyone (in this market) has cash, but there are few easy ways to leverage it. As you move up the pricing tier, there are fewer and fewer buyers who can afford that investment, so market pressure seems to let up making investments seem more attractive. Diamonds from Tiffany's? Turning the table, the simpler explanation is that the more money a person has, the less each dollar means to them. The more cash you have, the less risk-averse you need to be.

    Take into account that Google stock is kind-of like Google's currency: Googlebucks if you will and the Dollar is kind-of weak. This is like people saying that "we want to trade all of our US dollars for something backed by more than just US labor."

  • Market capitalization (Score:3, Insightful)

    by Sheepdot ( 211478 ) on Saturday July 23, 2005 @03:27PM (#13145233) Journal
    Not many of you are stock junkies I would venture to guess, and it is very important to empahsize the market capitalization point.

    When it gets as high as it has for Google, no new investors enter. Which means PPS drops. It doesn't mean the company is any worse off financially, but it means that fewer people are willing to invest in something that doesn't return dividends like it should.

    We've certainly got interesting times ahead. I would venture to guess Google's market capitalization will eventually reach that of ERICY, or Ericsson, which is also overvalued, about $52 billion.

    At that point, the PPS will be about $194.34 and may actually fall further assuming there's some massive shorting and scare sells. You should be able to buy in sometime this year around 170 bucks. That is, given they don't do a stock split.

  • Flat Pop (Score:3, Insightful)

    by Doc Ruby ( 173196 ) on Saturday July 23, 2005 @04:06PM (#13145417) Homepage Journal
    One or a handful of stocks does not make a bubble. Google's inflated price is partly a measure of the pent up desire for Internet stocks in general, which is being expressed only in the magic, untainted "Google" brand, which only became well known after the crash was safely defined in memory as "past".

    The actual Internet Bubble was the opposite: any Internet stock was inflated, because buyers knew there'd be a shakeout, couldn't tell which ones would survive to win, so they hedged their bets by buying all of them. That hastened the collapse of the entire equity market, because the equity markets propped up losers, never letting either the equity market or the product market decide winners and losers.

    When the Internet stocks look like the real estate market, with low interest rates, supported by Chinese purchases of our debt, propping up vast billions in inflated speculative real estate value, then we're back in a bubble. When a few Internet stocks are inflated, we're still looking at a market that can't do anything but boom or bust. We've learned very little from the Bubble and its Bust. Until we do, we'll never have the sustainable growth in the equity markets that reflect a healthy economy.

  • Insider trades (Score:2, Interesting)

    by Pizaz ( 594643 )
    Check out the recent transactions from some of the biggest insiders at Google.

    http://finance.yahoo.com/q/it?s=GOOG [yahoo.com]

    http://moneycentral.msn.com/investor/invsub/inside r/trans.asp?Symbol=GOOG [msn.com]

    I dont see any buying, just alot of selling from a few select folks.

    • I dont see any buying, just alot of selling from a few select folks.

      It's called diversification. When a stock triples from its IPO like that it leaves the insiders with all their eggs in one basket. I don't care how positive you are on the company at that point. It'd be lunacy to buy, and prudent to sell.

  • Reference analysis of Google multiple before the earnings release here [www.rant.st]

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