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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.'"
You seem to presume that a company's value can be measured in terms of your personal experience with it. In fact, there are many companies which, if they went bankrupt tomorrow, would not be noticed by you, but nonetheless bring in good profits and offer strong growth.
And a company's valuation has as much, if not more, to do with how well it is managed as how well its products are received. Google's popularity says they can bring in revenue, sure, but if Google's management is deficient, it doesn't matter how popular its services are; as a company, it's a bad investment.
They simply want to buy Google because it's Google, it's cool, and its the "Next Big Thing!"
I'm reminded of Krispy Kreme, Yahoo, Cisco Systems, and the optical equipment companies such as Bookham and Corning, all of which still trade well below their peak.