Google above $700 after 2007 Q1

Q4 should be able to grow Google's buttomline by 10% at least - as this
is the 2nd strongest Google/search quarter. However Q1 is going to be
the BIG Q as always for Google.. in Q1 you have 3 major months of
winter/media/Internet activity without any holiday season to take
peoples time away from media.

I see Google in $550-$600 in the first two weeks after Q4 come out
around 20th of January - and then at around $700 when the huge Q1 is
reported around 20th of April. My argument is simply that Google's P/E
does not get smaller than this (so the share can't fall without a fall
in profit) and the growth in Q4 and Q1 will push the share to $700
after Q1 is reported in April.

Buy Google, sell Yahoo!

This article is exactly my point. Read it buy clicking on the headline. Good work Rick Munarriz!

Tomorrow Yahoo! will post Q3 and on Thursday Google will. Expect Yahoo! to disappoint since they are still loosing market share to Google. Google in the other hand should do well from a growing online market of which they command a growing share. Also Google's substantial international revenue will be worth more this quarter since the dollar has been lower compared to Q2.

After this Q3 comes the two strongest quarters - Q4 and Q1. Expect Google to do very well in this period. Their annual growth is still around 80% while Yahoo!'s is around 20%. The difference says everything. Q4 is a banner quarter, but Google still does well here - while Q1 is bigtime search quarter.

Yahoo! Should Run Adsense

Google DOES have by far the largest group of advertisers and there is
no sign of Yahoo! catching up. Also Google's Adsense is far better at
maximising return on the pageview than Yahoo!'s Overture is. Yahoo! has
even publically admitted - that they will not catch up on Google. So
why don't they just go ahead and run Adsense? I am sure that they could
get to keep around 90% of the revenue and I am sure that Yahoo! revenue
would increase dramatically if they did. Adsense just is better
capitalisation than Overture.

Advantage - Yahoo! shareholders would get a lot better return on their
investment

Disadvantage - Yahoo!'s pride would hurt, and probably stand in the way
of this happening

Microsoft Will Lose To Google

Great article really! Dealing with the fact that this is a new game with new rules. Microsoft needs speed and friends - and has neither. Speed what do you mean? Vista will come out in no more than a year from now. Well - lets see about that.

The Reason Why Google Is Down: Big CAPEX

I read a great article called Capex Hits Big Techs by Cody Willard on TheStreet.com. He has a really good point and possible explanation to why Google is down - as is Microsoft. They are both really ramping up their spending on capital expenditure - hardware, infratructure buildings etc. And I remember that Eric Schmidt did point out in the Google Q1 statement that CAPEX would outgrow revenue for the rest of 2006. That of course reduces short term profit and can make some investors wary. However, I strongly believe that Google is investing in the right things and that these investments will pay of and keep Google ahead of the pack. Especially the idea of Google creating an alternative to the Internet is interesting. The more they grow (and they do a lot of that) the more reasonable the investment will be to them. If they can increase peoples use of Internet, they WILL increase their revenue. Its just a matter of time before the maths work out positively on this one and they will push ahead. Stay tuned for GoogleNet.

Google a bargain at $400

Ever since the day after Google reporting the record high 2006 Q1 the share has been trading down every single day - from $450 to now $400. Notice that this has been under small volume and therefore probably not as "bad" as it looks. There seem to be no apparent reason for this fall and the blogs and discussions boards (actually nice on Google Finance) also cry for a reason for this setback in the stock price.

Currently Google's EBITDA P/E is 29,7 only slightly higher than Yahoo!'s ditto at 26,1. It just does not make sense. Google by far is outgrowing both Yahoo! and MSN and should be traded at a larger premium. But then again - if you like bargains - I guess you have one now.

Today's story is Google complaining about Microsoft defaulting MSN Search in the new IE 7.0 browser - but Microsoft's defaulting of MSN in the browser has not stopped MSN from beeing a pathetic 3rd runner ever since it started out. I think Google can only rise from here!

Disclaimer: Buying stocks are full of risk - don't listen to me I could be very wrong yada yada yada..

Google EBITDA $1 Billion

For some reason Google did not report their EBITDA number - or at least for the first time I could not find it in their 2006 Q1 statement. I have found else where on the net, that it should be $1 billion. That is a pretty need number that gives them a yearly EBITDA growth on 83% versus Yahoo!'s EBITDA growth on a disappointing 26%. Why people still think that Yahoo!'s numbers where so great surprises me, because the numbers clearly show that Google is leaving Yahoo! seriously behind.

I expect Yahoo! to show yearly EBITDA growth going forward on 20%-30%, while Google probably will end up just north of 50% the next few years. Its still a high growth for the company, but obviously down from the previous EBITDA growth rates above 100%.

Added: This means that the growth from Q4 was 23% - where I was expecting 25%-30%.

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 ;)

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..

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!

Google to Replace Burlington on S&P 500

Google to Replace Burlington Resources on S&P 500 After Trading Close on March 31!

This is great news for all Google investors as mentioned earlier, since more fund managers will need to buy into the stock, because they benchmark their fund against S&P 500. This will have a positive impact on Google's share price.

And this is exactly what happened in after hours trading. Google surged 31,61 to 373,50 a jump on 9,25%!

8 Year Old Love Affair With Yahoo! Is Over - Part 4

Therefore I finally sold my Yahoo! shares at $42,72 a piece Friday the 25th of November when the company had a market cap around $60 billion. It made a nice 10 times my money back. The reason that I am no longer just keeping Yahoo! as a defensive investment is because I fear that it might stay below this $42,72 level for quite some time. There might even come opportunities to pick it up at a nice discount compared to this $42 ballpark. There are several reasons that Yahoo!'s shareprice might suffer substantially in 2006-2007:

• Google could surpass Yahoo! in number of users - making the last Yahoo! optimists (that they could catch up to Google) become realists instead - and realize that Yahoo! Can not just convert their larger portal audience to the world's largest search audience (where the money is). When they no longer have this hope to clinch on to, they might become Google investors and at the same time start selling out in their Yahoo! holdings
• When Google might be added to the S&P 500 Index, Yahoo! no longer has this blueprint advantage over Google - which is an important factor in the placement of funds from institutional investors
• Investors might start questioning if it is worth paying an EBITDA P/E of 37,5 on Yahoo! when the growth of the company is slowing fast towards 30-40% yearly, while Google EBITDA P/E at only 45,8 is only 22% above Yahoo! although the company is growing more than twice as much and sees a slower decline in it's growth rate than Yahoo!

The height of my Yahoo! love affair was probably when I got hired by Yahoo! Nordic in 2001 and it was two great years with a lot of learning and insight into global Internet businesses. I left the company two years later afraid, that Yahoo! International would shut down the small and money loosing Nordic entity, which also happened 9 months later. That gave me 1½ years of even more learning and insights at MSN, but that is another story. The point is - my love and belief now lies with Google instead of Yahoo! Right now it seems the most likely candidate to reach world domination and the title as "Most Valuable Company in The World".

8 Year Old Love Affair With Yahoo! Is Over - Part 3

If only I could have gotten into Google ownership back in January 1999, when they were around 12 people, the meteoric rise that would have been.

Instead of being clever and buy straight into Google when they first went public on August the 19th 2004 I kept my believe in Yahoo! Being able to catch up with the quality and usage of Google. No doubt a mestake since the clear market leader Google still today is gaining market share on search from both MSN and Yahoo! However, I made up for my initial mestake by getting into Google when it was below $200 per share.

Google is now above $400, but still has a long way to go up the stock chart I believe. It is a matter of time before Google will surpass Microsoft's market cap and also a matter of time before Google will be the first company ever to reach the magic market cap of US$1000 billion. I could be wrong, but this is my strong believe. Also I think that passing Microsoft will happen before 2010 (which means a maximum of four years from now). Being the first company at US$1000 billion will happen no later than 2015. Buying Google is on your own risk and I will not be responsible for that. However, the way I see it, Google is where I thought Yahoo! was going to be - Google is the company about to be the most valuable in the world. One of the reasons is that they deliver massive value both to consumers and businesses plus the fact that they can capitalize on this value.

Finally having tracked on the key figures on both Yahoo! and Google since April this year I felt very strong about Google! I always thought that I would keep my Yahoo! investment as a defensive investment to my Google holdings, but the recent more than 30% runup in Yahoo!'s shareprice since September this year to above $42 Friday a few weeks ago, made me think, that Yahoo! has become to expensive compared to Google. I am not talking about their share price, which you can not use for arguing a share price is high or low - since that argument is useless without talking about the amount of outstanding shares, and people often tend to leave this number out of the equation. What I am talking about is Google's EBITDA P/E being only 22% higher than Yahoo!'s and Google is after all growing more than twice as fast as Yahoo! on EBITDA. Plus they more than anything has the momentum on a range of key areas much more than both Yahoo! and MSN.

8 Year Old Love Affair With Yahoo! Is Over - Part 2

I remember that Yahoo! was a company with just a little over $2 billion in market cap. I was certain that world domination was just a decade or two down the road. So from that day in October 1997 I think I was the biggest Yahoo! evangalist in Northern Europe (probably far from true). Luckily for me I got in before the Internet bubble started to gain momentum and therefore still was OK after the serious burst. Still believing in the fundamental changes that the Internet and Yahoo! would bring about I kept my Yahoo! shares. Even though they had come down to about one 36th of their value during the bubble and basically equaled my initial investment in October 1997. One lesson I learned was to actually take a little profit if you own a company that you feel is over valued. I was just afraid of loosing out on further increases and also would have to leave 40% of the profit with the Danish tax system, and in this way reducing my funds for reinvestment.

I kept my focus on and believe in Yahoo! although I did start getting a little anxious about the popular startup Google. Actually this started before the bubble years. Google launched in September 1998 and got a lot of press about the revolution it brought about to the quality of search results. Knowing that search was the most widely performed activity by far by people using the Internet, it was a little disturbing to my Yahoo! investment that someone else was getting so popular on this very most popular activity. This led me to in retrospect my proudest moment: On January the 10th less than five months after Google launched I wrote an email to the approximately 12 person company asking if I could invest in the company or in the owner of the rights to the company. That answer - the oldest email in my Yahoo! Mail inbox was from Sergey Brin:

"Thanks for your interest in investing in Google. Currently we have
funding to last us some time. I will let you know when investment
opportunities arise in future rounds of funding.

As far as the possibility of going public, we are not allowed to
speculate about that.

Also, I recommend you sign up for the google-friends mailing list off
our home page.

Regards,
--Sergey

Sergey Brin
President,
Google.com"

No doubt my proudest moment, but it did not leave even 10 cents more in my pocket :)

8 Year Old Love Affair With Yahoo! Is Over - Part 1

When someone first showed me this new thing "Internet" in 1995 one of the first pages I saw was www.yahoo.com. My friend showed me this page and told me, that it was the biggest site and like a guide to the rest of the Internet. I was sold..

Seeing the Yahoo! site back then my initial thought was: If these guys just keep executing and delivering - they could become the most valuable company the world has ever seen. I didn't know much about the Internet, but I was very certain, that this new media with all its capabilities once broadband would be more widespread would change the world. Internet has already changed the world a lot, but I still believe that we are still just on step 2 of a long journey.

Yahoo! was not a listed company on the stock exchange, so there was no means of buying into what I thought would become a real powerhouse and extremely valuable company. In the meantime I stopped thinking about Yahoo! (since there was no money for me to be made there). Instead I sort out any opportunity to learn more about the media in general and started to work on different projects, that could give me some valuable insights into Internet. Basically so I could position myself well for a job with Internet, where I saw the future, once my bachelor and masters would be finished.

Just started my masters in the autumn 1997 I read an article in the Danish business paper Børsen about the early success on NASDAQ of the first and largest portals: Yahoo!, Excite, Infoseek and Lycos. Being a believer in economies of scale and firstmover advantages there was no doubt in my mind but to buy into Yahoo! of the four. I was an extremely strong believer in the Internet and a very strong believer that Yahoo! could and should pull of a formidable growth. I sold all other shares I had (not as much as I would have liked) and gathered all the cash I could and put everything into Yahoo! shares.

CNET: Google blankets city with free Wi-Fi

It is all set. Google has won its first city over on free Wi-Fi. Not San Francisco yet, the jury is still out on that one, but its home town of Mountain View, California. This will provide free wireless Internet access for the approximately 70,000 residents in the Silicon Valley.

It must be just a matter of time, before cities in the rest of the world is offered the same Wi-Fi blanket. The potential for Google to gather more users and information about them is huge. It could prove very helpful in expanding and monetizing local search for Google. This could turn out to be one of those strategic advantages, that competitors will find very hard to compete with.

Microsoft Is Hilarious

I love Microsoft's sense of humor. Especially because they are making fun of themselves without knowing it. They have for quite a while now run ads, where employees that haven't changed to newer versions of Office are starring as dinosaurs. Like they live in the old world not utilizing the features of the new technology. When in fact, it is Microsoft which is the real old school dinosaur.

Microsoft is clinging onto the desktop model still wishing that Internet had never arrived. And now they are launching Office Live to do online ad ons to their software. Ad ons are just not going to make it. If you don't use the Internet from the core of your business strategy, but merely trying to do some enhancements - mainly because your competitors are very online and you are not - its not going to work.

Microsoft, you have had your years in the sun, but you are the true dinosaur about to become if not extinct then really unimportant.

NYTimes: Google Wants to Dominate Madison Avenue, Too

A long but really good article on the rise of Google's business model, and where it might be headed in the future. Reading for those that are serious about their investments in Google, otherwise you might find it too long.

Google Growth Compared To Yahoo! Growth

Both Google and Yahoo! posted Q3 results last week. I don't compare with Microsoft here, because I generally believe, that Microsoft won't succeed with its current plans. I don't think that Microsoft will become a larger player online, in fact as Henry Blodget recently did a piece on (see my post the 7th of October), Microsoft is still after ten years of trying falling behind the current two leaders Yahoo! and Google. Also I believe that Microsoft's software domination will diminish, as more and more software will be served over the Internet. Especially now where Google is planning to offer free Internet, first in the sense of Wi-Fi in San Francisco, but I am sure that it will offer this across North America and then later the rest of the world. If they can make a business out of it in San Francisco (local ad + other ad sales > cost of delivering access) I am sure, they can make the same business model work elsewhere. Especially when access costs will be working their way towards zero cost. Eventually free wireless Internet to the civilized world will dramatically change the desktop model for software usage. As I earlier wrote: Microsoft has never been an innovative company, it has just had a strategic advantage in owning the operating system - the rest is sloppy business they still have made a fortune out of, since they could hold competitors out. This old school monopoly will not stand the wind of change brought about by Google, Sun Microsystems, Yahoo! and a lot others.

Maybe I am being too hard on Microsoft, but I just don't believe in their future, and neither does the stock market. Alright that was Microsoft out of the equation, lets have a look at the last few quarters growth in Yahoo! and Google.

EBITDA (Earnings Before Income Tax Depreciation and Amortization) is generally a good way of looking at a company's current and future ability to generate revenue and profits. That's why I focus on this number. Also I find it very reliable at determining the development of the share price of a company. Let's have a look at the quarterly EBITDA numbers for Google and Yahoo! in 2005.


It should fairly be mentioned, that Yahoo! last Q4 had a Q over Q growth from Q3 on 25,8% while Google "only" grew 17,8%. So apparently Yahoo! grows faster than Google during Q4. However, since then Google has shown significantly higher momentum during 2005 than Yahoo! so this might change in Q4 2005.

When this is said my personal conclusion is, that obviously both companies high growth is coming down. But very importantly: Although Google is growing faster than Yahoo! - Yahoo!'s growth is coming down faster than Google's. From Q1 to Q3 Yahoo!'s YoY growth came down 16 percent point (64% -> 48%), while Google's only came down 6 percent point (115% -> 109%).

Then when you compare the EBITDA P/E (Price/earning, how much you as shareholder pay per dollar of EBITDA when purchasing the stock) of the two companies, I must say, that the premium you pay on Google as the faster growing company with today the far superior R&D budget and probably also brand value - I think that Google turns out to be a better buy. With last Fridays share prices the EBITDA P/E for the two companies is as follows:

Yahoo! EBITDA P/E: 32,6
Google EBITDA P/E: 37,2

Google is growing more than 100% - Yahoo! is growing less than 50%. Google might actually also have the better brand value today. Would you rather own shares in Yahoo!? I mean Yahoo!'s YoY growth one year from now might be 30%, while Google might still be around 80%-90%. That is three times Yahoo!'s growth. The gap in finances for R&D is just going to be staggering. Yahoo!'s investment in Alibaba in China might keep Yahoo!'s growth a bit higher though.

Personally I invested in Yahoo! October 1997 and have kept my investment. I invested in Google in April 2005 - when the share was at $193 just before Q1 results. Although I think that Google is a better buy I am keeping my Yahoo! investment, as it is a defensive investment of my Google investment. Yahoo! is after all the 2nd best search engine today, and they are trying hard to get better than Google.