Google is best known for online search and online advertising and a very high price to earnings ratio based on expected high future growth.
Google Inc. [GOOG] (2/28/06)
Google's goal is to "improve the way people connect with information." Their corporate profile describes their revenue model as: <I> "We generate revenue by delivering relevant, cost-effective, online advertising. Businesses use our AdWords program to promote their products and services with targeted advertising. In addition, the thousands of third-party websites that comprise our Google network use our Google AdSense program to deliver relevant ads that generate revenue and enhance the user experience."</i>
I should know since Google ads support Suite101.com!
CAN GOOGLE KEEP GROWING TO JUSTIFY THEIR HIGH P/E RATIO?
Google has been a company with huge growth but at a huge multiple to earnings. At $353, Google as a trailing twelve month PE ratio of 70. A PE of 70 is ok for some momentum investors if the earnings are growing at 70% a year. But if earnings slow, then the multiple to earnings investors are willing to pay drops. This "news" today was mostly an admission by Google that their easy growth is over and now they have to find new ways to grow earnings.
[Note: PE is Price to Earnings Ratio]
What should worry Google investors is how Google has bungled release of important news this year. Last month Google missed its earnings expectations due to an "error in a tax calculation." This month they announce significant news in a way that caught most off guard.
CNBC is reported today what they call "stunning news" about Google. Some of CNBC's Silicon Valley reporter from Cupertino, Jim Goldman's, comments on the news moments after the news was released:
=>> "This is a bombshell that no one on the street was expecting"
=>> "The company has had difficulty in taking new products and squeezing new revenue from them."
=>> "Just about everybody is totally taken off guard."
=>> "This is flabbergasting news" to make on a web cast just days before a financial conference without an Reg. FD filing with the SEC before making the statement.
"This is a serious financial black eye for the company."
CNBC anchor, Joe Kernan, said for Google to not know that saying "The search monetization gains have mostly been realized and we will have to look elsewhere for growth" would effect the stock price is not good. He said the CFO should know enough to file a statement with the SEC under Regulation FD before announcing market moving news.
Regulation FD: "Regulation Fair Disclosure" where the SEC says all important news must be announced to everyone at the same time, not selectively to favored analysts as it seems Google did with this news."
Here are some selected comments from Google's CFO (Chief Financial Officer) George Reyes, speaking at a Merrill Lynch conference.
=>> "You can see that each and every quarter. We are going to have to find new ways to monetize the business."
=>>" We're getting to a point where a law of large numbers starts to take root. At the end of the day, growth will slow. Will it be precipitous? I doubt it. I am not turning bearish at all. I think we have a lot of growth ahead of us. It's a question of what rates."
In Google's defense, Bob Pisani said that Google did put out a press release announcing that it would be making a presentation at the Merrill Lynch conference. Also, Google reported fourth quarter earnings in January that were lower than expectations. Google stock tumbled about 20% from a January 2006 high of 475.11 to a recent low of $337.83. It had recovered to nearly $400 when this news hit and took the stock down to its 200 day moving average of $340.
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DISCLAIMER: Answers & my words are general in nature, are not meant as specific investment advice, and do not necessarily represent the opinion of anyone but Kirk. Individuals should consult with their own advisors for specific investment advice.
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Comments
Feb 28, 2006 8:09 AM
Bhumika Ghimire
:
Google has a very innovative team, I am sure they will come up something, but what about the public relation issue caused by the China censorship scandal? Also the tiff with Justice Department in home front?
Feb 28, 2006 3:36 PM
William Duffy
:
I want to thank both of these posters for these literary masterpieces today. When I saw these, I coughed up my coffee all over my computer screen.
__________________
I need sincere advice on Google. by: ima_masterbaiter 02/28/06 12:20 pm Msg: 639553 of 641375
I'm hoping that a sincere person reads this and offers honest advice to me.
I saw a 60 minutes report on Google and was floored by all of the new applications they were rolling out. After doing some research, I borrowed $150K from my HELOC and bought 360 shares of Google in November at about $415/share.
Now this stock is tanking, and my HELOC payments are skyrocketing as interest rates continue to rise. I'm on the verge of panicking, selling and having to lick my wounds but I also want to hear what some of the knowledgable pros on this board have to say before I do so.
Please, no bashing or snide comments. I'm in a real bind and could really appreciate all the genuine advice that you can spare.
Regards,
Herb
___________________________________ I need sincere advice more than the by: sunmyleather (F/Ft. Meyers, FLA) 02/28/06 12:31 pm Msg: 639688 of 641359
last guy. I leveraged all of my finances I could and bought 1,900 shares at $472 because I heard somebody say it should go to $2,000. The little money I had left I treated myself to a vacation in the Galapogos Islands.
I just got back yesterday and wonder what I should do now? Should I borrow as much money from my family so that I can double-down?
Please only serious replies - thanks
Mar 9, 2006 9:09 AM
PEIC
:
xxx
Google to settle click-fraud lawsuit Advertisers claim overcharges by search engines - Verne Kopytoff, Chronicle Staff Writer Thursday, March 9, 2006
Google Inc. has agreed to settle a class-action lawsuit that accused it and other Internet companies of improperly charging advertisers for fraudulent clicks on their online ads.
As part of the proposed settlement, Google would reimburse advertisers for up to $90 million in ad credits, plus attorney fees.
The agreement, disclosed Wednesday, is a major development in the Internet search industry, which some say is rife with so-called click fraud. Many advertisers complain that Google doesn't do enough to combat the problem and that its clients are suffering financially as a result.
Advertisers pay search engines such as Google an average of $1.43 each time a user clicks on their ads, according to Fathom Online, an Internet advertising company. But in some cases, scam artists repeatedly click on those ads to cause a rival company to be overcharged.
Lane's Gifts & Collectible, a retailer in Texarkana, Ark., was the lead plaintiff in the suit, which was filed in an Arkansas state circuit court. An attorney for the company did not return a telephone call for comment.
Ask.com, the Oakland search engine, and also a defendant in the class action, said Wednesday that it expects to be removed from the lawsuit because of Google's settlement. Ask.com was part of the litigation only because it displayed Google's ads.
The lawsuit also named Yahoo Inc. as a defendant. However, unlike Google, the Sunnyvale Web portal said Wednesday that it plans to defend itself vigorously against the accusations.
The terms of Google's settlement allow advertisers to apply for credits for clicks they believe were invalid. Normally, Google gives advertisers 60 days after the suspect clicks to apply. However, as part of Wednesday's agreement, advertisers can apply for credits for invalid clicks back to when Google introduced its online advertising system, called AdWords, in 2002. Google will decide whether to award the credits.
Nicole Wong, associate general counsel for Google, said the settlement "is further proof of our willingness to work together with advertisers to reimburse invalid clicks."
Andy Beal, chief executive at Fortune Interactive, an online advertising company, called the settlement a good outcome for Google because it doesn't have to pay advertisers, only reimburse them with credits. Com
Mar 9, 2006 3:58 PM
Im Smile
:
As Goose said to Maverick while in a flat spin just before punching out and killing himself hitting his head on the canopy of the F14 in TOP GUN...
$90 Million GOOG settlement can't resolve the fraud in GOOG's business model.
See you at $250 :)
Apr 18, 2006 5:08 PM
Andrea Coutu
:
Has anything ever happened with Froogle? I wrote about this in my <a href="http://www.andreacoutu.com/page/blogone/31">Vancouver Marketing Consultant</a> blog a long time ago, and was wondering if Froogle is still an issue for the company.
Apr 21, 2006 5:37 AM
Tim Trainor
:
Apparently Mr Market liked the Goog Q 1 results, as GOOG up $38 in pre-market
Jun 17, 2006 6:03 AM
Steve Thompson
:
By MARK VEVERKA
CLICK FRAUD CAN BE HAZARDOUS to your portfolio -- and becomes more so each day. That warning should run as a red alert to investors about to buy shares of any Internet search engine, especially Google (ticker: GOOG). For a more noxious breed of 'Networked click-fraud "bots" are here -- an invisible electronic army of merry fraudsters that could take a serious slice off Google's stratospheric price.
With Google trading at 31 times 2007 earnings, lofty expectations for the continued prosperity of pay-for-click advertising are baked into Google's $390 share price (as Barron's warned in our Feb. 13 "In the Drink1" story). At this level, any disruption to the paid-search revenue stream that fuels Google's shares might be like Kryptonite to the 'Net giant -- because Google is mainlining paid-search advertising. On-line advertising accounts for some 99% of the company's gross revenue.
Click fraud occurs when a person or computer program clicks on an Internet ad to generate a fake or improper charge per click.
The fraud, as perpetrated either by programs or by humans at so-called click farms has been suspected for a while (and was highlighted in Barron's Jan. 30 editorial, "Why Google's Technology Contains the Seed of its Destruction2"). But the newer, meaner hacker-injected "bots" -- automated programs that make the scamming faster and easier -- are on the rise.
Normally, an advertiser is charged by the number of clicks recorded by a Website or advertising network that sells the space.
But when click rates are inflated by fraudulent means, then Websites such as Google, Yahoo! (YHOO) and others end up charging inflated rates.
In other words, the search engines can actually benefit from the crimes. The search engines say they are limited in what they can do to combat the perpetrators, but skeptics argue that it is in their best short-term financial interests to drag their heels in fixing the problem.
Two years ago, Google's chief financial officer, George Reyes, told investors at a Credit Suisse conference that "Click fraud is the biggest threat to the Internet economy."
The problem has only gotten worse, and threatens the credibility of paid-search advertising -- which is the fastest growing form of online-ad business and currently generates an estimated $5 billion a year in revenue for the sector. The search-engine companies have tried to downplay the size and seriousness of the problem by insisting that it affects only
Jul 1, 2006 4:19 AM
Steve Thompson
:
Friday, June 30, 2006 INVESTORS' SOAPBOX AM
W.R. Hambrecht & Co.
WE ARE EXPECTING MORE OF THE SAME positive momentum from the first quarter of 2006 to carry forward through the second quarter with search-based media meeting or exceeding revenue and earnings expectations. This is due in large part to the impressive growth rates the Internet advertising market continues to enjoy, despite a seasonally weak first quarter for traditional media.
Advertisers, formerly limited by narrowband creative options such as banners, have continued to spend the majority of their dollars on television media. However, we believe the availability of broadband video, reach and competitively priced CPMs (cost per thousand viewers for a Website) will make 2006 a pivotal year for online media and related-advertising-services companies.
The shift in advertising appears to be particularly significant this year, as evidenced by a weak upfront market, decreasing by an estimated 2% to 3% this year and an estimated 38% year-over-year growth rate during the seasonally weak first quarter, according to the IAB/PricewaterhouseCoopers report comparing first-quarter 2005 to first-quarter 2006.
Google has continued its impressive gains in the share of search. According to Comscore, Google once again increased its share from 43.1% to 44.1% in May, up 6.6% from May 2005 -- an impressive gain, considering Google's major competition (Yahoo, MSN, AOL, Ask) averaged a loss of 2% in terms of share during the same time period.
We believe Google's 1% increase in search share will help Google exceed our revenue expectations for the quarter. Specifically, traffic acquisitions costs (TAC) will likely be lower and net revenue higher than our estimates, but in line with consensus. The consensus net revenue estimate is $1.627 billion for the second quarter and our revenue estimate is $1.620 billion. We are currently growing TAC at a flat 32% of revenue for the quarter while consensus appears to be closer to 31.5%. While seemingly small, a 0.5% decrease in TAC as a percentage of revenue would increase our net revenue by nearly $12 million, bringing our estimate to $1.632 billion, provided monetization rates stay the same. It is unlikely monetization rates will stay the same, as "long tail" increases and more esoteric searches become difficult to monetize, but decreasing TAC is realistic given historically decreasing TAC over the last four quarters and an increase in share.
We continue to
Jul 6, 2006 7:50 AM
PEIC
:
Small Business and Technology Focus The Bill for Bad Clicks By Jonathan Berr TheStreet.com Senior Writer 7/6/2006 7:05 AM EDT URL: http://www.thestreet.com/smallbusinesstech/smallbusinesstech/10295154.html
Click fraud is a $1.3 billion problem that affects Google (GOOG) , Yahoo! (YHOO) and Microsoft's (MSFT) MSN, along with publishers and advertisers, according to a report released Wednesday by market researcher Outsell Inc.
Click fraud is a long-standing concern of search engines, who charge advertisers based on the number of times someone clicks on their ads. The problem manifests itself in many ways, such as when someone clicks on the ads of a competitor to drive up their marketing costs. Other times, Web site publishers improperly click on their own ads to get revenue.
The company, which estimates that 14.6% of all clicks are invalid, reached its conclusion from a survey of 407 advertisers who together spend $1 billion annually. Outsell, which pegs the U.S. search market at $5.5 billion, estimates that $800 million in search advertising spending is wasted. The survey also found that 27% of advertisers have cut their spending, on average, by 33% because of concerns about click fraud, equal to $500 million in lost revenue for the search engines.
"That means that the industry -- as fast as it growing -- is being dragged back," says Chuck Richard, Outsell's media analyst. "Because the search engines don't report on their statistics, advertisers are free to dream up whatever numbers that they want."
Click fraud is very hard to quantify because there is no standard definition of what it is, and the problem is hyped by companies who are trying to sell anti-click fraud services. In addition, search engines, which refund money to click-fraud victims, don't provide advertisers specific information about which clicks were invalid, says Kevin Lee, former chairman of the trade group Search Engine Market Professional Organization
"It's something that marketers should be paying attention to," he says, adding that Outsell's 14.6% fraudulent click estimate is higher than others he's seen. "People who sell reports are similarly tempted to hype the number."
The 27-page report criticizes search engines for providing no data to back up their often-stated claims that click fraud is under control and has no material impact on their businesses. Investors, too, are concerned about click fraud and likely will question the search engines about it when s
Jul 7, 2006 5:57 AM
Steve Madigan
:
<P> Looks like GOOG premarket is hot as a pistol>>> I am holding at Aug and a Sept contract and looking pretty good right about now. Almost have a double on the Aug contract. I picked it up when GOOG was 407 with the 420 strike call...<P> Here is the chart...<P> <A href=http://stockcharts.com/def/servlet/SC.pnf?chart=GOOG,PLUADANRBO[PA][D][F1!3!5!!2!20]&pref=G>GOOG 5 pt chart</a> <P> RS right now is kicking butt, looks very strong. I can see 450 with out to much problem.<P><B><a href= http://investment.suite101.com/discussion.cfm/1574/1-1>Beartoes</a></B><P><script type="text/javascript" src="http://s25.sitemeter.com/js/counter.js?site=s25PnFCharts"></script><noscript><a href="http://s25.sitemeter.com/stats.asp?site=s25PnFCharts" target="_top"><img src="http://s25.sitemeter.com/meter.asp?site=s25PnFCharts" alt="Site Meter" border="0"/></a></noscript><!-- Copyright (c)2006 Site Meter -->
