I am not a [stock] trader. I do not have the nerves for it, reminds me too much of gambling (and knowing myself a little, I could easily get addicted, best to simply stay away).
But I am an observer of the stock market, have taken companies public, sold companies to public companies, and in general am fascinated by the perception of value as reflected in a company's stock price.
If you were asked 6 months ago whether Google would see it's market capitalization (what the stock market says the company is worth) diminished by more than 50% by the end of the year, the answer would have been a resounding "absolutely not." In fact, there are thousands of people that bought Google shares as a long term investment at prices above $700 as recently as January 2008. Did I short it then (i.e. bet that the price would drop)? No. Did I think it was a ridiculous valuation? Yes. Was the market expecting too much of Google? Yes.
But what about today, with GOOG trading around $300? Is it a buy? Again, I will not be buying, but interested in the theoretical analysis.
Google generated over $4 billion in net profit in 2007, will exceed that in 2008, and as of September 2008 had over $17 billion of liquid assets (cash or equivalent). So enterprise value is somewhere around $70 billion. Not bad. Overpriced? Yes, if they stay within the confines of generating revenue from adwords and adsense. No, if they manage to successfully diversify. And that will be up to the management team.
Do I think they can do it? No. I think Sergei and Larry stepped in it with paid listings, don't think they have shown that they can do that with anything else.
Comments