Thursday, April 20, 2006

Google Above $500 Before June

If you read my last post, you see why Q1 is the biggest quarter by far for Google. Last year proved that as well. I believe that Google can show EBITDA growth 25%-30% higher than Q4 - where people search less due to the holiday season. Q1 is the three months were nothing obstruct people from doing a lot of searches - ask anyone who buys keywords on AdWords.

If Google DO grow EBITDA 30% - I believe the share could grow 30% as well, as expectations are intact (stay around same P/E level). The math is pretty simple: Current share price of $410 - ad 30% growth - ad the same P/E that gives us a share price of $533.

Last year Q1 growth was 45% over Q4 - I believe 30% is more realistic this year. It took 1,5 months for the share price to adjust 45% up last year - that is why I say "$533 before June".

Disclaimer: Buying equities are FULL of RISK.. make your own choice - and remember its your own responsibility. I have been wrong before - and I will be wrong again ;)

Wednesday, April 19, 2006

Q4 Is Banner - Q1 Is Search

I was very surprised to see the sharp selloff in Google after their Q4, which I think they did really well. But too many analysts thought that when Yahoo! had sold out their banner space then Google would also be making tons of money - wrong! This has nothing to do with each other. I will explain why in a second. Google did make a lot of money, but not enough to satisfy most analysts.

In Q4 two things happen:
  1. Most advertisers concentrate their spending here
  2. Internet usage starts to slow a little from mid November due to holiday season activities like shopping for presents, x-mas parties, religious functions etc. etc.
This means that the slightly lower inventory is quickly sold out on the biggest sites. Great if you sell banners like Yahoo! But Google feel the slight decline in search activity. They can't force users to search more. Also I can say from an advertising perspective that we don't necessarily change the price we are willing to pay for a click on Google's AdWords. I must confess that the product I work with (webhosting) not really is seasonal, but I believe that most advertisers have worked out the optimal price to pay for a click on Google. So when search activity is slowing up to Christmas, then less people click on Google's ads and in the end it means slower revenue growth for Google. This is for Q4 obviously.

What happens in Q1 is:
  1. Advertisers just spend most of their budgets in Q4 and so did most people - so demand for advertising is smaller
  2. Search has its prime quarter here - all three months have the heaviest search activity
When you know that most advertisers have an almost fixed price on their keywords on Google and search volume really climbs from Q4 - then you understand that Q1 really is the greatest quarter for the search business by far. Google proved it already last year, when their 2005 Q1 EBITDA rose 45% from their 2004 Q4 - a massive growth to say the least. Thursday night after market close we will see if they can do it again. Personally I believe that they will show a very strong quarter, but a smaller EBITDA growth than 45%. I expect Google to skyrocket in after hours sending it above $450.

You can see Google's Q1 announcement and webcast from here!

Disclaimer: Buying stocks and options are full of risk - make sure you make your own judgment and remember that it is on your own risk. Yada yada yada..

Thursday, April 06, 2006

Yahoo! was a sell at $42!

Of course that is easy to say now, when they are trading at $33, but back in November 2005 I said that Yahoo! was too expensive at $42 in November and was heading fast towards 30%-40% in yearly EBITDA growth (remember that Google has an EBITDA growth of 115% yearly).

When their Q4 came out they hit exactly 40% in yearly EBITDA growth, my guess is that when their Q1 comes out the 18th of April their yearly EBITDA growth will lie some where between 30% and 35% - probably closer to 30%. The money is in search advertising for very good reasons (that's were the buyers for advertisers products are) and Yahoo! is continuously loosing share to Google.

Personally I would not be buying Yahoo! above $26 (EBITDA P/E = 20). They are simply loosing to much ground to Google plus they have officially conceded their efforts in search. Their target is now to hold on to their market share, but even that seems too optimistic. When their growth soon will be 30% yearly on EBITDA and might even move lower - why pay a high P/E?

One thing that could work a little positive for Yahoo! is their new project to include text ads clickrate in their ranking. Instead of now where it is only how much an advertiser will pay per click. This will improve the revenue from their search listings. It should be rolled out at the end of 2006 - beginning of 2007. I have always wondered why they did not copy this clever thing from Google immediately, but maybe Yahoo! has been sleeping for too long.

Google to supply free Wi-Fi in San Francisco with Earthlink

Another great news for Google! Sure this is not the final decisive battle - but a really important head start on the way to develop a business model, where Google can make tons of money on local ads and develop new services! And even though they say that they will only concentrate on SF because all their employees live there and HQ hometown - then don't believe it. Its like when they told Yahoo! they would concentrate on being a search engine..

Google is here to make money - and its OK with me. And make money they will, when they blanket USA and later the rest of the worlds populated places with free Wi-Fi. The cost of providing it will go down each year, and the money to be made is going to go up each year. I believe that it will be a profit even from the start. A few years down the road it will become extremely profitable for Google. Remember that Google today generate about 1/3 of all online revenue, so even before they develop new services based on knowing peoples exact location and before serving local ads again based on location (which the competition won't be able to) they will actually make a lot just from the Internet usage rising because of free access!