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Google Inc. Message Board

  • unitedfood unitedfood Oct 22, 2004 10:44 AM Flag


    beware IT WILL POP

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    • Actually i used market cap and I meant market cap. Granted I'm not using it as anything more than a blunt instrument. It is just one of those things that sets off my warning radars.

      However, the statement that the market cap of GOOG is now about the same as Ford and GM combined is an accurate one. If one wants to do more detailed analysis that is fine. I think this is an interesting article:

      Google Rekindles Internet Fervor After Results

      Especially this quote:

      "In calculating his price-target, Rowen said his $200 target assumes a price-to-earnings multiple of 76 times his raised profit estimate of $2.62 per share for fiscal 2004, or 54 times his higher 2005 estimate of $3.67.

      It also assumes sustained 50 percent year-on-year compounded annual growth for Google to justify such a valuation in most investors' lifetimes."

    • Google may be mispriced... it may crash... but it is not "worth more" than GM & Ford combined.

      You are mistaking "Market Cap" with "Enterprise Value". Every company makes a choice -- do we raise capital from investors using equity or debt (or a combination of the two)? The combination of Debt + Equity - Cash is what a company is "valued at" (sometimes confused with "worth") called "Enterprise Value".

      Google has chosen to raise equity only -- a whopping $1.5B in their IPO. The remaining shares are valued at $48B (and include ownership of the $2B in cash). The Company has roughly $3M ($0.03B) in debt.

      The enterprise value for Google is:

      $0 + $48 - $2 = $46B

      In contrast, GM & Ford have chosen to finance themselves primarily with debt rather than equity. Ford has approximately $165B in debt and GM has approximately $297B in debt. The enterprise value of GM is $$260B and the enterprise value of Ford is $160B. The specific breakdown is:

      GM: $297B (debt) + $22B (market cap) - $59B (cash)=$260B

      Ford: $165B (debt) + $24B (market cap) - $29B (cash) = $160B

      So GM & Ford combined have a "value" of $420B. This excludes the impact of GM and Ford having "borrowed" an additional $105B from their employees in the form of underfunded pensions. So I would actually put the "value" of GM & Ford at $525B (one half a trillion) or roughly 10x more than Google.

      This $525B is supported by free cash flow of $14.3B (a multiple of 37x) and very few growth prospects.

      Google's value of $46B had free cash flow of roughly $400MM ($0.4B)in the last 12 months or a multiple . This has been growing at 40% per QUARTER. It doesn't take many of those quarters to get a multiple below 37x (actually 4 quarters will get you there).

      I'm not arguing it will happen... I think it's unlikely. And I'm not arguing that if it does that Google is worth 37x FCF -- because I think it'll be even closer to tapping out then... but that doesn't mean that Ford & GM are a bargain -- in fact, you might be better off in Google.

      All the best.

    • My reality check is whether Google is worth the same as both Ford and GM combined. Some people don't believe it when I say that but check it out, Google is now about on a par in terms of Market cap.

      OK, this does not NECESSARILY mean there is a bubble going on but if you run the numbers and see what is required in terms of total revenue to justify the PE it is a gigantic number. Personally I don't think Google will get there.

      I think this is a situation of everyone knowing Google is cool and wanting to jump on the rocket. This is, of course, a classic bubble mentality and even though I really do want to jump on board I just can't. And, before I'm accused of being a short let me say I am not selling short either. This rocket may go to 300 PE or higher and my objection to the current valuation is not that it won't go even higher but that I refuse to participate in bubbles.

      There is no doubt in my mind this is a bubble stock.



    • How is it this will grow if market and oil gives the world a reccesion?

516.35+5.25(+1.03%)Dec 19 4:00 PMEST

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