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.
As of 12/31/05 the Total Return for "Kirk's Newsletter Explore Portfolio" since 12/31/98 is Up 197% while the S&P500 is only up 12% & NASDAQ is only up 1%!!!
My newsletter offers quite a bit of useful information including two recommended core portfolios composed of index funds or ETFs, tables, discussion of interest rates, The Fed Model, etc. that many say are worth the price of the subscription before accounting for the fantastic returns in my explore portfolio.
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.
The copyright of the article GOOG: Google Inc. in Investment is owned by Kirk Lindstrom. Permission to republish GOOG: Google Inc. in print or online must be granted by the author in writing.
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<
br /> 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&g
t;</B><P><script type="text/javascript"
src="http://s25.sitemeter.com/js/counter.js?site=s25PnFCharts"&g
t;</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 -->
Jul 7, 2006 6:39 AM
Steve Madigan :
<P> So much for the fire cracker smoking hot. It seems more like a
sparkler that is at the end of the stick... beartoes
Jul 7, 2006 6:58 AM
Im Smile :
best search engine out there IMO but the gap is closing fast
but
they have a couple of serious problems:
1) competition
anecdotally, I'm finding things on search.msn.com ask.com and
shopzilla.com as easily and sometimes that I don't find on goog, so I use
them interchangeably.
. Posted on Sep 7th, 2006 Paul Kedrosky submits: The news
Tuesday night (WSJ sub. req.) was that Google (GOOG) is working with major
content owners to launch the ability to search news articles as far back as
the 1700s. While not entirely new -- you could do this, to some degree,
through existing vendor-specific search -- making it available, even in
clip form, through Google's popular interface will be mind-altering.
Imagine being able to search through clippings from the Lindbergh
kidnappings, or Black Monday in 1929, or the 1914 assassination of Archduke
Franz Ferdinand, or press from the Napoleonic Wars. It would be riveting,
truly history come alive (even if you have to pay to read the whole
article).
More broadly, who is this good for and who does it
hurt?
Surprisingly, perhaps, it's good for content owners, like
the N.Y. Times (NYT). They just broadened their distribution umpteen-fold,
while giving up, it seems, negligible revenue. I would expect them to
finally begin really monetizing [Ooooh, that word] their giant news
archives. (Doubly so given that the Times is saying that it will have its
archives back to 1815 or so available digitally within twelve months.)
And who does it hurt? A number of companies, most prominently among
them Reed-Elsevier (RUK), whose Lexis-Nexis service -- which sells news
search via high-price subscription -- continues to be assaulted on many
fronts. After all, many people just want an article cite -- date and
publication -- and they will soon be able to get that for free.
<b>Beartoes</b> Free PnF analysis of stocks in my <A
HREF= http://investment.suite101.com/discussion.cfm/1574/1-1 >Point and
Figure Forum</A>
Oct 19, 2006 5:00 PM
Steve Thompson :
. http://internet.seekingalpha.com/article/18858
Google
Inc. (GOOG) Q3 2006 Earnings Call October 19, 2006 4:30 pm ET
Executives
Kim Jabal - Director of Investor Relations Eric Schmidt - Chief Executive Officer George Reyes - Chief
Financial Officer Larry Page - Founder and President of Products Sergey Brin - Founder and President of Technology Jonathan Rosenberg
- Senior Vice President of Product Management Omid Kordestani - Senior
Vice President of Global Sales and Business Development
Analysts
Mark Mahaney - Citigroup Robert Peck - Bear
Stearns Mary Meeker - Morgan Stanley Anthony Noto - Goldman
Sachs Imran Khan - JP Morgan Christa Quarles - Thomas Weisel Jordan Rohan - RBC Capital Markets Ben Schachter - UBS Bill
Morrison - JMP Securities Justin Post - Merrill Lynch Safa
Rashtchy - Piper Jaffray Doug Anmuth - Lehman Brothers Mark Rowen
- Prudential Marianne Wolk - Susquehanna
Presentation
Operator
Welcome to the Google, Inc. conference call.
This call is being recorded. At this time I would like to turn the call
over to Ms. Kim Jabal, Director of Investor Relations. Please go ahead.
Kim Jabal
Hello, everyone, and welcome to our third
quarter 2006 earnings call. On the call with us today are Eric Schmidt,
Chief Executive Officer; George Reyes, Chief Financial Officer; Larry Page,
Founder and President of Products; Sergey Brin, Founder and President of
Technology; Jonathan Rosenberg, Senior Vice President of Product
Management; and Omid Kordestani, Senior Vice President of Global Sales and
Business Development. Eric, George, Larry and Sergey will provide some
thoughts on the quarter and then we will have Jonathan and Omid join us for
your questions.
This call is being webcast from our Investor
Relations website. Our press release, issued a few minutes ago, is now
posted on the website, as well as presentation slides that will provide
further details on the quarter. A replay of this call will be available
within a few hours.
Some of the comments we will make today are
forward-looking, including statements regarding future product innovations,
the prospects for growth in online advertising, traffic and users, the
seasonality of our business, the accounting treatment for fees related to
our distribution deals, the growth of our operating and capital
expenditures, possible future compression in our margin, our hiring
patterns, our expected tax rate for 2006, our planned acquisition of
YouTube and expe
Nov 15, 2006 6:24 AM
PEIC :
Wow!
<b>Google Searches for the $500 Mark</b> By Jim Cramer RealMoney.com Columnist 11/14/2006 4:25 PM EST URL: http://www.thestreet.com/markets/activetraderupdate/10322198.html
Speaking of hitting stops, which is what happened with the S&P
today, check out Google (GOOG) . That stock is about to breach its high,
and when it does, the next stop could be $500.
Until options
expiration. That could cause a hit. Google is battled every expiration
week, and this week should be no different.
Except that this
market does love 52-week highs, because there are tons of people who are
chartists, and they are forever worried about double tops. (Remember the
famed Sears Holdings (SHLD) double top that was supposed to stop everything
cold? )
<b>I continue to believe that Google deserves a 40
multiple on next year's earnings, which puts it comfortably at
$600.</b>
But it has to get through $500 first, doesn't
it?
Jan 19, 2007 6:25 PM
PEIC :
<b>Banner ads. $60 CPMs when they came out - untargeted. Today, $.60
CPMs. you're not reading it wrong. Banner ads have lost 2 zeros off their
CPM rates.</b>
January 19, 2007 Google AdSense : We
Make Your Life More Difficult posted by MR WAVETHEORY at 1/19/2007
05:25:00 AM
It's annoying enough that you can't put AdSense and
Yahoo Publisher ads on the same page. It's even more annoying now that they
force you to switch the look and feel of the ads. I think all this means
that Google is losing share to Yahoo and very afraid of the competition.
After all, why would a winning team forbid its customers and partners from
doing business with its rivals. I think that Google is doing this because
the effectiveness of its ads is going down.
Competitive Ads and
Services In order to prevent user confusion, we do not permit Google ads or
search boxes to be published on websites that also contain other ads or
services formatted to use the same layout and colors as the Google ads or
search boxes on that site. Although you may sell ads directly on your site,
it is your responsibility to ensure these ads cannot be confused with
Google ads.
Don't you love the way they describe it?
Prevent confusion from what? Isn't this unfair competition?
Google's just instituted a policy that forbids placing rival ads that can
be confused with AdSense anywhere on an AdSense publisher's website. And
that's a problem for Yahoo (YHOO)'s competing Yahoo Publisher Network, as
well as countless other online-ad networks, which have largely copied
Google's default look: blue links and a green website address.
Google already forbids publishers from putting AdSense ads on the same page
as ads from Yahoo or other competitors. But some publishers had gotten
around this rule by rotating Google and Yahoo ads throughout their
websites. The new rules make that impossible, unless publishers also switch
their sites' color palettes on the fly. That's a major pain for Web
designers who'd prefer to keep the look of their webpages consistent, no
matter who's providing the ads.
Why do I think this is a very
interesting development? Because I think that Google is doing this because
the effectiveness of its ads is going down. The text ad format was very
innovative when it came out 6 years ago, but today, everyone has text ads.
And if there is one thing we know about ad formats, its that new ad
formats
1) Have very high effectiveness when they come out. 2) Generate very high click t
Jun 19, 2007 9:29 PM
davey52 :
6.20.07: 12:37 am. et. Google gets preliminary OK to provide China internet
content. Forbes/Market Watch/Wall Street Journal. NICE !
