Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Bitcoin Black Swan - GOOGLE! - 24th Jul 21
Stock Market Stalling Signs? Taking a Look Under the Hood of US Equities - 24th Jul 21
Biden’s Dangerous Inflation Denials - 24th Jul 21
How does CFD trading work - 24th Jul 21
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21
Bitcoin Halvings Price Forecast and Stock to Flow Analysis - 18th Jul 21
Dell S3220DGF Unboxing and Stand Assembly - 32 Inch 165hz Curved Gaming Monitor Amazon Discount - 18th Jul 21
What Does The Fed Mean By “Transitory Inflation” And Why Is It Important To Understand? - 18th Jul 21
Will the US stock market’s worsening breadth matter? - 18th Jul 21
Bitcoin Halving's Price Projection Forecasts Trend Trajectory - 18th Jul 21
Dell S3220DGF Price CRASH to £305! 32 Inch 165hz Curved Gaming Monitor Amazon Bargain - 16th Jul 21
Google, Amazon and Netflix are Scrambling For This Rare Gas - 16th Jul 21
Sheffield Millhouses Park New Children's Play Area July 2021 Vs Old Play Area - Better or Worse? - 16th Jul 21
Inflation Soars, Powell Remains Unmoved. What about Gold? - 16th Jul 21
Goldrunner: Gold Could Jump To $1,900-$2,100 In Next 30 days – Here’s Why - 15th Jul 21
Tips For Finding The Right Influencers - 15th Jul 21
ECB Changed Monetary Strategy. Will It Alter Gold’s Course? - 15th Jul 21
NASA And Big Tech Are Facing Off Over This Rare Gas - 15th Jul 21
Will the U.S. Dollar Lose Momentum In the Second Half of 2021? - 15th Jul 21
Bitcoin Stock to Flow Model Forecasts Infinity and Beyond! - 14th Jul 21
Proteomics: The Next Truly Massive Investing Opportunity - 14th Jul 21
Massive Solar Storm to Hit Earth 2025, Coronal Mass Ejection (CME) Danger and Protection Solutions - 14th Jul 21
Is This The Best Way To Play The Coming Helium Boom? - 14th Jul 21
Meet SuperMania and its Ever-Present Sidekick, SuperMeltdown - 14th Jul 21
How NFTs Are Shaking Up Arts Trading - 14th Jul 21
Gold: High Time to Move Out of the Penthouse - 13th Jul 21
Climb Aboard! Silver Should Run Up To $38 In Next 30 Days - 13th Jul 21
How Will Remote Work Impact the U.K. economy? - 13th Jul 21
Why Helium Stocks Are Set To Soar in 2021 - 13th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Google passes $500, Is it time to sell ?

Companies / Google Nov 26, 2006 - 04:54 PM GMT

By: Nadeem_Walayat

Companies

Google passes $500 on the back of a wave of speculative interest, is this the start of another run up in google or are we near a potential slump in the google share price ?

Google passes $500, Is it time to sell ?

Since google floated some 2 years ago at $85, it has had strong run higher to the current price of $505, up 600% since IPO, and up over 50% on the 330 lows seen barely 3 months ago. Now we look at where google actually stands and probability that it can achieve an even higher price or if Google has run ahead of its fundamentals.


Googles primary, and you could say only source of revenue is the google search engine, where the current market share of searches amongst the five main search index players is approximately as follows.

Google 45%
Yahoo 30%
Microsoft 15%
AOL 5%
Ask. 5%

Despite Yahoo being 2nd, the main competitor to Google is Microsoft, for Microsoft has the means and the financial muscle to overtake google, it may not happen in 2007. But the risks given the amount of resources that Microsoft can throw at the Search Engine is highly probable. Despite googles several recent purchases of companies such as Youtube, and providing free services such as blogging, they are future possible money earners, not current, if Microsoft is able to put a dent into googles primary revenue source searching, then the google stock price could be headed for a sharp drop of more than 50% from the current price of $505.

A financial comparison between Google, Microsoft and Yahoo.

  Google Microsoft Yahoo
Share Price $505 $30 $27.5
Earnings per Share $9 $1.2 $1.3
Price / Earnings Ratio 56 25 22
Turnover $9.5bn $45bn 6$.2bn
Profit $2.5bn $13bn $1.1bn
Search Market Share 45% 15% 30%
Market Capital $154bn $292bn $38bn

The key item to stand out on the comparison between the 3 major search engine providers are that google is valued at near 3 times either Microsoft or Yahoo. Which suggests extra speculative interest on future growth comprising more than 50% of its current valuation.

Google has a market share of 45%, can that market share grow further when it has microsoft and yahoo coming up behind it ? My opinion is that it may well be able to maintain market share, but will find it difficult to grow market sure much above the current 45%. Which suggest profits will have to come from other business and growth in advertising revenues from searching. Advertising is a cyclical business and there are little significant barriers to entry for this type of business. Google's revenue growth (as strong as it is), is slowing down on a quarterly basis and this is yet to be reflected in the price. Google additionally has benefited from the ongoing problems at Yahoo, which has suffered from a downturn in financial and car advertising, both of which contributed to a 38% fall in its most recent quarterly profits.

The market valuation of Google at $154bn on earnings of $2.5bn seems excessive, much as the value of Microsoft was during the dot com bubble of 1999. The stock does appear to have got ahead of its future revenue growth rate when the only revenue stream that google has is ads revenues generated by the search index. Google is overly expensive at $154bn, not when you can pick up a stock in microsoft and yahoo for near 1/3rd the cost.

Technical Analysis
1. Immediate support is along the uptrendline since Google floated in 2004, presently at $405, which would mark the initial target for any decline.
2. Secondary support exists along the intermediary lows along £365.
3. Major support and the main target for any down trend are the lows along $330. Which would represent a near 35% drop in price, which would still leave google overvalued, relative to its main competitor search engines as once a decline begins both Microsoft , yahoo and other tech stocks would also be declining, but both being outpaced by the slump in Google.

Conclusion :
It is a risky time to be holding google and the safest strategy for stock holders would be to take some profits. In the long-term google may go higher even above $1000, but when I say the long-term I mean 5 to 10 years, coupled with steady year on year earnings growth, and a price earnings valuation nearer 20 rather then the present 60 ! That would be the best case scenerio, the worst case scenerio is that either Yahoo or Microsoft or someone else comes along with an better search engine, It has happened before !

Nadeem Walayat

(c) MarketOracle.co.uk 2005-2006

Disclaimer - This Analysis / Forecast / Trade Scenerio is provided for general information purposes only and not a solicitation or recommendation to enter into any market position, and you are reminded to seek independent professional advice before entering into any investments or trading positions.
The Market Oracle is a FREE Financial Markets Forecasting & Analysis online publication. We aim to cut through the noise cluttering traditional sources of market analysis and get to the key points of where the markets are at and where they are expected to move to next
! http://www.marketoracle.co.uk

This article maybe reproduced if reprinted in its entirety with links to http://www.marketoracle.co.uk


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in