Google/GOOG: Various items
A) Google, the stock...
Can Google's stock gains continue? See Rachel Beck's column.
B) Its valuation...
1) Barron's discusses Google, saying that the the recent surge in Google's stock price to nearly $300 a share, and a subsequent correction of nearly 8%, underlines the Street's continued inability to reach any kind of consensus on what Google might be worth, or even how to go about trying to figure it out. The company surely is growing fast, as the Street consensus calls for revenues this year of about $3.6 billion, with profits of $5.21 a share. And the '06 estimates call for revenues of $5 billion and earnings of $6.62 a share. Based on '04 numbers, Google trades for about 40x revenues and roughly 100x earnings. Using '05 ests, those are 22x revenues and 52x earnings. Things look more reasonable with 2006 estimates, which translate to 16x revenues and 41x earnings. If there were 2010 ests, the stock might actually look cheap.
Google is trying to spread beyond search into display advertising, for one thing. And there's rampant speculation on what else they might do. "If you look 25 years out, it's just endless," says Charlene Li, an analyst with Forrester Research. "But the same is true for MSN, AOL and Yahoo!" Google got off to a flying start in the absence of competition. They'll have to fight for every single incremental increase in rev. With a 50% gain, the stock would be about the same size as IBM or Intel. A triple would make it one of the 5 highest market-cap companies in the world, a tad under Microsoft, which has 10x as much revenue as Google. The bottom line is, at $80bn, the risk in Google shares has grown. And the upside ain't what it used to be."
2) John Hussman (again):
C) Its (assumed) online payment service...
1) The WSJ says Google plans to offer an electronic-payment service that could help the co diversify its rev and may heighten competition with eBay's (EBAY) PayPal unit. Exact details of the search co's planned service are not known. But the knowledgeable people say it could have similarities with PayPal, which allows consumers to pay for purchases on Web sites by funding electronic-payment accounts from their credit cards or checking accounts.
2) Several firms are commenting on rumors that Google is working on a PayPal-like payment system and has been testing it with some e-commerce players already...
a) Piper Jaffray says their weekend checks indicate this assertion is likely to be accurate and that Google may launch this product in time for the holiday season. Regardless of the initial success of the product, they believe such a launch would likely negatively impact EBAY shares and could be a positive catalyst for GOOG...
b) UBS says their take is that this is indeed a real possibility, but it is far from definitively moving ahead, with the timing and other details unknown, and there may be other reasons for raising the issue now. After speaking with Scot Wingo of ChannelAdvisor, they believe his assumption is driven by discussions with retailers that may potentially use the service. Google would not speak on this, nor could the firm find retailers willing to discuss it.
3) Brad Hill says "the pseudo-news about Google’s online payment service is a cut above the usual rumor mill if only because the story broke (no reg req) in the Wall Street Journal. And why shouldn’t Google compete directly with eBay’s PayPal? I only hope Google doesn’t call the new service Google Wallet as reported—it makes me uncomfortable when Google flagrantly imitates Yahoo!. Let’s call it GooPal for now.
"Some observers have wondered if Google Auctions can be far behind, forgetting that Google is already deeply involved in the auction business via AdWords. One simple implementation of GooPal would be as the transaction mechanism woven into AdWords revenue and AdSense payout. But the meaty speculation, it seems to me, lies in whether Google will transform Froogle and/or Google Catalogs from a window-shopping platform to a true shopping platform. (Google Catalogs is currently in a state of neglect.) Now that Google has convinced thousands of merchants to improve Froogle results by submitting jproduct feeds, how big a step would it be to throw a shopping cart into the mix? Here, imitation of Yahoo!’s Wallet-fueled e-commerce platform would be a good thing.
"Given Google’s populist and democratic impulses, I am aquiver with hope that GooPal will become the standard merchant solution for microbusiness. As things stand now, PayPal and an army of competitors offer merchant accounts of varying quality and cost to online entrepreneurs. Google is just the force majeur to tie it all together into a killer merchant app, especially for selling virtual product such as music files and e-documents. Make it turnkey, hands-on, and brain-dead simple. THAT would be stepping well into the future, leaving Yahoo!, PayPal, and every Web host on the planet in the dust. Call it Google Juice."
Can Google's stock gains continue? See Rachel Beck's column.
B) Its valuation...
1) Barron's discusses Google, saying that the the recent surge in Google's stock price to nearly $300 a share, and a subsequent correction of nearly 8%, underlines the Street's continued inability to reach any kind of consensus on what Google might be worth, or even how to go about trying to figure it out. The company surely is growing fast, as the Street consensus calls for revenues this year of about $3.6 billion, with profits of $5.21 a share. And the '06 estimates call for revenues of $5 billion and earnings of $6.62 a share. Based on '04 numbers, Google trades for about 40x revenues and roughly 100x earnings. Using '05 ests, those are 22x revenues and 52x earnings. Things look more reasonable with 2006 estimates, which translate to 16x revenues and 41x earnings. If there were 2010 ests, the stock might actually look cheap.
Google is trying to spread beyond search into display advertising, for one thing. And there's rampant speculation on what else they might do. "If you look 25 years out, it's just endless," says Charlene Li, an analyst with Forrester Research. "But the same is true for MSN, AOL and Yahoo!" Google got off to a flying start in the absence of competition. They'll have to fight for every single incremental increase in rev. With a 50% gain, the stock would be about the same size as IBM or Intel. A triple would make it one of the 5 highest market-cap companies in the world, a tad under Microsoft, which has 10x as much revenue as Google. The bottom line is, at $80bn, the risk in Google shares has grown. And the upside ain't what it used to be."
2) John Hussman (again):
C) Its (assumed) online payment service...
1) The WSJ says Google plans to offer an electronic-payment service that could help the co diversify its rev and may heighten competition with eBay's (EBAY) PayPal unit. Exact details of the search co's planned service are not known. But the knowledgeable people say it could have similarities with PayPal, which allows consumers to pay for purchases on Web sites by funding electronic-payment accounts from their credit cards or checking accounts.
2) Several firms are commenting on rumors that Google is working on a PayPal-like payment system and has been testing it with some e-commerce players already...
a) Piper Jaffray says their weekend checks indicate this assertion is likely to be accurate and that Google may launch this product in time for the holiday season. Regardless of the initial success of the product, they believe such a launch would likely negatively impact EBAY shares and could be a positive catalyst for GOOG...
b) UBS says their take is that this is indeed a real possibility, but it is far from definitively moving ahead, with the timing and other details unknown, and there may be other reasons for raising the issue now. After speaking with Scot Wingo of ChannelAdvisor, they believe his assumption is driven by discussions with retailers that may potentially use the service. Google would not speak on this, nor could the firm find retailers willing to discuss it.
3) Brad Hill says "the pseudo-news about Google’s online payment service is a cut above the usual rumor mill if only because the story broke (no reg req) in the Wall Street Journal. And why shouldn’t Google compete directly with eBay’s PayPal? I only hope Google doesn’t call the new service Google Wallet as reported—it makes me uncomfortable when Google flagrantly imitates Yahoo!. Let’s call it GooPal for now.
"Some observers have wondered if Google Auctions can be far behind, forgetting that Google is already deeply involved in the auction business via AdWords. One simple implementation of GooPal would be as the transaction mechanism woven into AdWords revenue and AdSense payout. But the meaty speculation, it seems to me, lies in whether Google will transform Froogle and/or Google Catalogs from a window-shopping platform to a true shopping platform. (Google Catalogs is currently in a state of neglect.) Now that Google has convinced thousands of merchants to improve Froogle results by submitting jproduct feeds, how big a step would it be to throw a shopping cart into the mix? Here, imitation of Yahoo!’s Wallet-fueled e-commerce platform would be a good thing.
"Given Google’s populist and democratic impulses, I am aquiver with hope that GooPal will become the standard merchant solution for microbusiness. As things stand now, PayPal and an army of competitors offer merchant accounts of varying quality and cost to online entrepreneurs. Google is just the force majeur to tie it all together into a killer merchant app, especially for selling virtual product such as music files and e-documents. Make it turnkey, hands-on, and brain-dead simple. THAT would be stepping well into the future, leaving Yahoo!, PayPal, and every Web host on the planet in the dust. Call it Google Juice."
posted by David M Gordon | 5:41 AM
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