Wednesday, November 22, 2006

Is Google "Darth Vader"?

Google Inc. (GOOG) shares soared past $500 USD for the first time the day before...I pondered, how big can Google get before we realize that it is as villianous as Vader....

I admire Google, they turned search into a four letter word i.e. "a dime" without being a pain. Internet advertising is no more a bothersome popup, or a flashing image on a website, an unobtrusive experience for the surfing masses and free cashflow to Google. Vader figured out a way to monetize billions of searches without being intrusive while making us yell "I Googled it!".

Google collects an estimated 25% of all U.S. internet ad revenue and is encroaching traditional media such as newspaper and radio. With the acquisition of YouTube, and the whole advertising/media tilt, I feel the company will start to face its share of public relation challenges, despite it's "do no evil" mantra.

Growth potential is fantastic, however, such metrics seem to be priced into the companies current valuation. With a Price/Cashflow North of 86 and a Price/Sales of approximately 25, I think it is time for the "Revenge of the Sith". In this case, Mr. Market.

As the old maxim goes, anything that is too good to be true is, "Too good to be true!"

So, if you hear your favorite analyst on a TV channel such as CNBC, etc. touting "Vader" as a must have, I would say "caveat emptor".

IMHO, Google's business is progressing at a gallop, but it's stock price seems to be traveling at "Mach" speed. When stock prices outpace the business, you have to understand that the party cannot last for too long and that it is time to take some "moolah" off the table.

1 comment:

Anonymous said...

Hi there, just thought you would want to know: Phil's Stock World is now at www.philstockworld.com