Thursday, June 9, 2005
Google bubble at $300+
According to this SmartMoney column in the Wall Street Journal (subscription required), Google this week surpassed the market cap of Time Warner which owns AOL that could benefit from the current rise in online advertising (which has a P/E ratio of 23, and a price/sales ratio of less than 2):
No other company is like Google, but any valuation has to begin by looking at its two major peers in the Internet sector, Yahoo and eBay, with Yahoo being the closer comparison. Google's trailing-12-month price/earnings ratio was around 115 yesterday, nearly double Yahoo's P/E of about 60. EBay, further along its growth curve, has a P/E of 62, comparable to Yahoo's. Google's price/sales ratio is a lofty 21.3; Yahoo's is 13.4; eBay's is 14.7. Back at the time of Google's IPO, I met stiff resistance when I argued that Google deserved to be valued on a par with Yahoo and eBay. Now that Google's valuation has far surpassed that of its peers, I find people arguing that Google deserves even higher multiples. This worries me.