Ready, Fire, Aim! - Mihail's Public Blog: Google stock's meteoric rise continues, but for how long?

Wednesday, February 2, 2005

Google stock's meteoric rise continues, but for how long?

When will Google stock get too close to the sun and come crashing down? I've been a suspect since the beginning but its share prices continue to soar. However, I'm not sure that Google can continue to generate more revenue from small and larger businesses -- with higher and higher priced ads -- while delivering less in revenue for the advertisers themselves. Google's success depends on its customers -- the advertisers that advertise via Google -- being successful.

So if this revenue growth for Google is at the expense of Google's customers, Google may be in trouble sooner than it thinks. And it may be only a matter of time that businesses take their advertising dollars elsewhere...and with Yahoo! and Microsoft nipping at Google's heels, that may not be as difficult as it used to be. According to this WSJ story (subscription required):

Google reported Tuesday that its profit rose eightfold as revenue doubled to $1.03 billion in the fourth quarter, exceeding even investors' high expectations. The Mountain View, Calif., firm's shares jumped 10%, or $19.71, to $211.61 in afternoon trading on the Nasdaq Stock Market. The stock has more than doubled since it began trading at $85 in August after an unusual auction-style offering.

...Since Google's business is growing more quickly and enjoys higher margins than Yahoo's, it also boasts a bigger market capitalization. Based on Tuesday's closing prices, Google's market value was $54 billion, while Yahoo stood at $48 billion. That's because investors are willing to pay nearly three times as much to own Google shares. Google trades at roughly 146 times its 2004 per-share net income, while Yahoo trades at 62 times per-share earnings.

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