Another Internet Stock Price Bubble Building?

Anonymous Coward writes "The Economist has a column looking at the valuations of some of the Internet's darlings, with a particular emphasis on Google. From the column: 'Valuations are, in fact, better founded than many of them used to be. But around 50 times next year's expected profits is still quite a leap of faith. At the levels seen in recent days, the price of Google's traded shares implies that it is the world's most valuable media company, with a market cap comfortably in excess of Time Warner's $76 billion, even though the latter had $42 billion in sales last year to Google's $3.2 billion. True, Time Warner's business is increasing at a snail's pace compared with Google's. But putting so high a price on future growth only makes sense if all's for the best in this best of all possible worlds. And it isn't.'"

Comments

Worth it

[FTL]

> At the levels seen in recent days, the price of Google's traded shares implies that it is the world's most valuable media company, with a market cap comfortably in excess of Time Warner's $76 billion, even though the latter had $42 billion in sales last year to Google's $3.2 billion.

I don't know about most people, but if Time Warner went bankrupt tomorrow, I would not notice (beyond having to delete channels 33&44 (CNN) from my grandmother's TV). Whereas if Google went bankrupt tomorrow, I would honestly be devastated. Heck, even my grandmother would be upset, she'd wonder where "the Internet" went. Granted, the vacuum would be filled very quickly by one or more entities.

Google also have an unusual combination of being both a) at the forefront of its market and b) good and ethical. Contrast with companies like Microsoft (forefront and evil), companies like Apple (distant second and good), and companies like SCO ('nuff said). Name another company that's both #1 in market share and #1 in user respect...

Google's worth every penny of its valuation.

Re:Worth it

[po8]

"Google offers nothing that cannot be cloned by MSN or Yahoo within a year."

Wrong. They own a pile of really skilled Ph.D.-level employees, and are hiring them at a rate unprecedented even during the glory days of Bell Labs and IBM. Google has bet the farm on the idea that putting some of the nation's smartest people in a productive work environment will make the company money. Essentially, they've taken a long position in Ph.D. futures. So far, the gamble seems to have paid off. Google has been launching services with big upside potential and low risk at an incredible clip, and the market has rewarded them for it.

I've been saying for 15 years that CS Ph.Ds are massively undervalued by the market. (Disclaimer: I have one now.) I personally think Google is about to demonstrate the truth of this proposition. But win or lose, at least it's an interesting business model.