Thursday, October 11, 2007

Google: Has it lived up to its Hype?

When Google [GOOG.NASDAQ] listed on the NASDAQ Stock Exchange 3 years ago there was much hype surrounding the IPO, people were tripping over themselves to get stock and brokers sang its praises from Wall Street to as many people as they could.

Has the IPO lived up to all the hype and excitement?

If the share price is anything to go by then the answer would have to be a resounding yes.

The closing price for Google stock on October 10 was US$625.68c, up over 45% over the last year and up over 700% on its $85 IPO price.

Those are some spectacular figures, rivaling only Scarlett Johanson and Jessica Alba for sexiness.

Some other spectacular figures are its trailing P/E of 50.82 and almost $200 billion market cap,
making it one of the biggest listed companies in America, now even bigger than Walmart, [WMT].

While Google is growing very quickly with revenue and profit increasing, the financial data that might support the stock price doesn't match.

Buyers of Google stock have driven the share price up so high at the level it is now there is humongous growth already factored in.

Clearly Google is a very smart company, it dominates its rather large niche in online advertising and continues to develop innovative and clever ways to get more eyeballs watching its ads.

We have seen this sort of thing happen many times before with "tech" type companies, IBM used to dominate the mainframe and then PC market and now doesn't, and Microsoft [MSFT]the PC operating system and software market which it still largely does but it shows early signs of slipping.

No company can continue to operate with the spectacular growth that Google is currently experiencing and its stock price is clearly way over valued.

Look at Microsoft again. By comparison its financial data figures make Jessica Alba look like Joan Rivers after a late night drunken spree.

Microsoft has a net profit bigger than Google's revenue with a trailing P/E of just over 21, better profit margins, a dividend and a stock price of just 30 bucks.

Are you getting my point!!

While Google is a fantastic company with a great future, its stock is massively overpriced and any sustained weakness in its performance will see the stock fall just as quickly as it went up.

Be careful.

Google Prospectus

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