Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Palladium Surges above $2,400. Is It Sustainable? - 27th Jan 20
THIS ONE THING Will Tell Us When the Bubble Economy Is Bursting… - 27th Jan 20
Stock Market, Gold Black Swan Event Begins - 27th Jan 20
This Will Signal A Massive Gold Stocks Rally - 27th Jan 20
US Presidential Cycle Stock Market Trend Forecast 2020 - 27th Jan 20
Stock Market Correction Review - 26th Jan 20
The Wuhan Wipeout – Could It Happen? - 26th Jan 20
JOHNSON & JOHNSON (JNJ) Big Pharama AI Mega-trend Investing 2020 - 25th Jan 20
Experts See Opportunity in Ratios of Gold to Silver and Platinum - 25th Jan 20
Gold/Silver Ratio, SPX, Yield Curve and a Story to Tell - 25th Jan 20
Germany Starts War on Gold  - 25th Jan 20
Gold Mining Stocks Valuations - 25th Jan 20
Three Upside and One Downside Risk for Gold - 25th Jan 20
A Lesson About Gold – How Bullish Can It Be? - 24th Jan 20
Stock Market January 2018 Repeats in 2020 – Yikes! - 24th Jan 20
Gold Report from the Two Besieged Cities - 24th Jan 20
Stock Market Elliott Waves Trend Forecast 2020 - Video - 24th Jan 20
AMD Multi-cores vs INTEL Turbo Cores - Best Gaming CPUs 2020 - 3900x, 3950x, 9900K, or 9900KS - 24th Jan 20
Choosing the Best Garage Floor Containment Mats - 23rd Jan 20
Understanding the Benefits of Cannabis Tea - 23rd Jan 20
The Next Catalyst for Gold - 23rd Jan 20
5 Cyber-security considerations for 2020 - 23rd Jan 20
Car insurance: what the latest modifications could mean for your premiums - 23rd Jan 20
Junior Gold Mining Stocks Setting Up For Another Rally - 22nd Jan 20
Debt the Only 'Bubble' That Counts, Buy Gold and Silver! - 22nd Jan 20
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

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

6 Critical Money Making Rules