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Ambiguity Drives Google's Valuation
BreadMan writes "The Economist has an article about how Google uses its amorphous positioning to gain investor interest. At the current valuation (the P/E is north of 110) this is a winning formula, but the article questions the long-term soundness. The reporter was chagrined that the last press tour focused more on the CFO (Chief Food Officer) and the monthly pasta consumption (500 lbs) than products or financial performance of the company."
Couple thousand? That's less than 10 shares at current valuations. Google may be a good company with good products, but there is nothing realy to justify the insane price their stock is selling for. Its turned into a giant Ponzi scheme that will end up with a lot of money going down the toilet, which could potentially bring a lot of other things down with it too.
My other car is a Popemobile
"Brand equity" represents the entire public perception of the branded product (in this case "Google" / Google's securitized equity). People think "Google" means "the next big thing" and "smart Internet entrepreneurs". So pasta consumption stories build brand equity. Which is where high PE ratios come from. Very little else can justify such high multiples, certainly not the value of forseeable future profits on such a high base stock price.
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make install -not war
http://www.robinsloan.com/epic/
It all makes sense after that.
Just add {In Space!} to anything.
Try one-time innovation.
Their innovation was a search engine that didn't have NASCAR ads all over it and worked on dial up lines. That's all. They did that in like 1998.
They've come up with nothing profitable since.
Nothing.
(They have come up with innovative stuff, but it's not profitable)
Google is a big sham. Their stock isn't even first class stock. It's pretend stock. The people who have bought it don't have the voting rights as the insiders. They can't even vote those clowns out of power.
Google is the last dot com scam.
Short 'em now.
Is anyone else as sick of hearing about this as I am? I feel like thats all they ever mention. Granted, its a cool perk, but I'm not going to work for $50k less just to get some free food. As a programmer who sits at a desk all day, free food = free diabetes at age 40.
Also the stock options arn't a great motivator anymore since the stock is basically priced for where Google will be in 3-5 years. To see the same return on your Google stock issued now compared to the stock of last year, Google would have to become the size of Microsoft in market cap.
The other front-page story on Netscape highlights the promises and risks of high-flying internet companies. In this post I argue that Netscape fell because it was so easy to switch browsers, especially when getting a new computer.
I wonder if Google will be able to make itself sticky enough to survive any threats? Currently, Google doesn't really offer any intercompatibility advantages in the sense that a co-worker's use of Google does not influence my use of Google. And if I replace my PC, Google doesn't offer anything that encourages me to use Google on the new machine. (GMail is somewhat sticky, but is too independent of Google's core search to force people to stay with Google search)
In contrast, I can see how MS could offer more integrative search experience where people would use MS search tools because friends and coworkers use MS search tools. If my coworker's PC is indexed by MS, my old PC was indexed by MS, and my new PC comes with built-in local/global search tools, then I'd bet a large fraction of people will switch to MS search tool regardless of Google's marketshare. Even Google's ad-words placements on 3rd party sites could be threatened if nex-gen MS server includes integrated ad serving tools.
I hope that Google finds a way to encourage people to stay with Google even as they change PCs or interconnect with co-workers and friends. The current valuation of Google requires both high growth and low risk.
Two wrongs don't make a right, but three lefts do.
Perhaps you don't care, but millions of people do. There are really two "classes" of email account out there. There's personal email, and there's corporate email. In the realm of personal email, webmail is the "in" thing, and will only become moreso. That's because with webmail, it's easy to change your address, make new accounts, and to keep your email alive through ISP changes, computer replacements/upgrades, and even physical moves across the country which might entail both. It gives you a floating identity out in the ether which you can always access so long as you can find a functioning web browser. You don't have to lug your laptop to a friend's place or to the cafe, just use a random machine with a browser to get your mail.
I know exactly how they'll be making enormous gobs of money in ten years. They'll have most of the first-world by the throat, in total depedence on Google Magic for their day-to-day needs related to the flow of information. Search, email, blogs, photos, video, mapping, satellite data, filtering, secure remote storage, etc. Just as the first-world has become entrenched in web culture and dependent on it, they will become entrenched in Google culture and come to depend on it as well. They're taking a pragmatic peicemeal approach to the age-old plan of replacing your operating system with something in a browser - what Netscape had hoped for so long ago (and fittingly, Firefox will help Google too). Eventually whatevfer your home computing device is (PC, game console, media center, or some hybrid thereof), all that will matter is that it has a fast net connection and a browser, and while the large content may come from varying places, the small content, the metadata, and the glue that links it all together will come from Google.
You say the customer can't be locked in to these free standards-based tools, and that's true. But with the minds they have employed at Google, the infrastructure and highly-prized domain-specific knowledge they've built up, and their brand name, good luck to any company that wants to overtake them at their own game. It's Google's game to lose, and it's pretty unlikely that they'll lose it in the next decade.
11*43+456^2
I think the article is spot on, and the reporter is not confused about anything at all - the reporter is rightly asking what the valuation of the stock is really based on - reporter notes vague handwaving, a non-committal (beta) software stream, much, much rumours, and the fact that people at google like to eat. The reporter asks - in not so many words - how and when google will start delivering on that stock price - i.e. where google's *80 billion* valuation is hidden, and how, if at any time at all, this will be capitalised.
Google's success is not at doubt, rather, the reporter draws some subtle parallels to the dotcombusts of yesteryear, and hints at potential repetition and subsequent dissapointment of those times.
People who think they know everything are a great annoyance to those of us who do.
If at any point Google announced to the world, "Hey look, we now have the largest collection of the most talented software engineers in the world. We have control over a very important and difficult to develop function that can be at the heart of every computer system in the future. By leveraging our presence across all OS platforms and across international borders, we believe that distributed computer and information access over the internet will render OSes into a low margin commodities market like hard drives and memory chips. Our plan of attack is to..." ...then Microsoft will surely take notice and turn their entire battleship towards Google and crush them as they did Netscape.
If, instead, they periodically leak many potential products for users in a beta program, each of which has revolutionary and potentially devastating implications for Microsoft, then Microsoft cannot bring to bear all of its laser-like competitive powers against those betas as they could against a concrete, real product strategy.
If, instead, Google gathers user feedback from their betas, and quietly works on improving the successes, they can release a product that has features that are difficult for even Microsoft to copy and compete on quality, and has very high user satisfaction. Then they can leverage the networking effect of positive word of mouth from users in their beta program to establish a very loyal and large satisfied user base before Microsoft even gets an inkling of what they're up to.
Google, like Netscape before it, has the *potential* to change how we use computers in the future. This is contrary to Microsoft's best interests. However, because Google is not in direct competition with Microsoft, but rather can grow around, and eventually subsume desktop functions, it is very difficult for Microsoft to directly attack Google. If, on the other hand, Google has clearly laid plans of attack, and product and profit plans clearly marked, then Microsoft can herald considerable force in a short amount of time to directly compete against whatever business model they have laid out, whether it's profitable or not.
Think of Microsoft as the Redcoats in Redmond. They have a very good regular army and have won every war they have been in. If you announce that you have an army and assemble one as such, they will assemble a larger one and destroy it. If, however, you use guerilla tactics and maintain an information network that is more aware of their position and movements than they are of yours, then you can win the war with even an inferior force.
Not that Google has an inferior force, but even with its high valuation, they would be hard pressed to win any war where dollars were being attritioned.