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."

Comments

Re:Proven innovation drives it...

[photon317]

Gmail seemed like a really cool idea for about 10 minutes, until everybody suddenly remembered that we don't care about web-based e-mail.

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 look at Google and ask myself, "how are they actually going to be making money in ten years?" It's hard to come up with any kind of solid answer.

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.

Re:The CFO is more important than quarterly number

[passthecrackpipe]

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.