Google/GOOG - one more time
Today is a good day to update my thoughts regarding Google/GOOG because my comments made early in this blog's life are lost to the archives. (And who goes there...? ;-)
Google/GOOG will repeatedly surprise (even startle) most market participants because very few truly understand what is afoot. This article explains one source of revenue for the company. Soaring revenues and earnings will help goose the stock price. Did you know, for example, that for Q3 '04, "Google's ebitda (Wall Street's proxy for operating income) totaled $321 million, vs. $322 million for nine-year-old eBay, $260 million for ten-year-old Yahoo, and $114 million for nine-year-old Amazon. Google is much smaller than those fellow dot-coms but is growing faster. Its sales and ebitda each doubled last year and the year before that. Google's operating profit margin, at more than 60%, is bigger even than Microsoft's at its peak." (Q4 numbers have been released, and exceeded Q3 by a seemingly inconceivable margin.)
So, too, will other events provide leaven to the share price, such as this probability, as stipulated several days ago by RBC Capital, "...although there is some subjectivity used to determine the selection and timing of companies to be added to the S&P 500, with GOOG's float expanded after the recent lockup expiration, the company now meets or exceeds all major criteria. We believe the stock would react favorably to such an announcement of a pending inclusion in major indices, which they believe is likely over the next six months. By our calculations, GOOG has less than half the institutional ownership of EBAY and YHOO."
Recognize, if nothing else, this one truth: the future of a company that surprises positively, repeatedly, and regularly. And all while the stock behaves as do most stocks -- like a pinball, as the shares trade hands from weak to strong, from traders and speculators to investors. Investing is not solely limited to purchasing at near $0 for some nebulously higher future price. Investing also is paying today's seemingly high price to realize tomorrow's higher price and lessened high valuation.
How can that be, you ask. A higher price connotes higher valuation, right...? Valuations typically rise with a rising share price due to rising expectations that are priced into the stock before the company has the opportunity to follow-through. Google/GOOG, however, could be that rara avis: its valuation measures likely will decline in the face of a rising share price because the share price advance will fail to keep pace with the improving fundamentals... until, that is, the capitulative run into its final high many years from now. (The obvious exception of cheapening fundamental measures will be that of market cap.)
There are, of course, better moments to purchase, such as upon that trendline I delineate in the chart below.
We draw trend lines in part to remain on the correct side of a trend, but also to note their breach (in either direction); this event represents moments to act. Of course, a breach of a trend line can in itself be meaningless for the extant trend -- i.e., the trend could continue albeit at a slower pace.
But Google/GOOG is one company to own, not merely watch its oscillations. As you know (and if you do not, then check those archives!), I perceive Google/GOOG to be a singular investment opportunity, the type of opportunity that comes along only once in a lifetime. I will startle you (and laugh now all you want), but I believe in 5-10 years' time the share price is headed for $1,000, $2000, even $4,000/ share (adjusting out any possible future share splits). I know that, between now and then, the share price will oscillate -- sometimes wildly -- but declines of the share price represent opportunities to buy (invest) rather than moments to fear. In that not-too-distant future you likely will find me laughing all the way to the bank.
Check back with me then.
Google/GOOG will repeatedly surprise (even startle) most market participants because very few truly understand what is afoot. This article explains one source of revenue for the company. Soaring revenues and earnings will help goose the stock price. Did you know, for example, that for Q3 '04, "Google's ebitda (Wall Street's proxy for operating income) totaled $321 million, vs. $322 million for nine-year-old eBay, $260 million for ten-year-old Yahoo, and $114 million for nine-year-old Amazon. Google is much smaller than those fellow dot-coms but is growing faster. Its sales and ebitda each doubled last year and the year before that. Google's operating profit margin, at more than 60%, is bigger even than Microsoft's at its peak." (Q4 numbers have been released, and exceeded Q3 by a seemingly inconceivable margin.)
So, too, will other events provide leaven to the share price, such as this probability, as stipulated several days ago by RBC Capital, "...although there is some subjectivity used to determine the selection and timing of companies to be added to the S&P 500, with GOOG's float expanded after the recent lockup expiration, the company now meets or exceeds all major criteria. We believe the stock would react favorably to such an announcement of a pending inclusion in major indices, which they believe is likely over the next six months. By our calculations, GOOG has less than half the institutional ownership of EBAY and YHOO."
Recognize, if nothing else, this one truth: the future of a company that surprises positively, repeatedly, and regularly. And all while the stock behaves as do most stocks -- like a pinball, as the shares trade hands from weak to strong, from traders and speculators to investors. Investing is not solely limited to purchasing at near $0 for some nebulously higher future price. Investing also is paying today's seemingly high price to realize tomorrow's higher price and lessened high valuation.
How can that be, you ask. A higher price connotes higher valuation, right...? Valuations typically rise with a rising share price due to rising expectations that are priced into the stock before the company has the opportunity to follow-through. Google/GOOG, however, could be that rara avis: its valuation measures likely will decline in the face of a rising share price because the share price advance will fail to keep pace with the improving fundamentals... until, that is, the capitulative run into its final high many years from now. (The obvious exception of cheapening fundamental measures will be that of market cap.)
There are, of course, better moments to purchase, such as upon that trendline I delineate in the chart below.
We draw trend lines in part to remain on the correct side of a trend, but also to note their breach (in either direction); this event represents moments to act. Of course, a breach of a trend line can in itself be meaningless for the extant trend -- i.e., the trend could continue albeit at a slower pace.
But Google/GOOG is one company to own, not merely watch its oscillations. As you know (and if you do not, then check those archives!), I perceive Google/GOOG to be a singular investment opportunity, the type of opportunity that comes along only once in a lifetime. I will startle you (and laugh now all you want), but I believe in 5-10 years' time the share price is headed for $1,000, $2000, even $4,000/ share (adjusting out any possible future share splits). I know that, between now and then, the share price will oscillate -- sometimes wildly -- but declines of the share price represent opportunities to buy (invest) rather than moments to fear. In that not-too-distant future you likely will find me laughing all the way to the bank.
Check back with me then.
posted by David M Gordon | 10:10 AM
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