The next Google is ... Google!

Posted May 25th 2007 7:06AM by Georges Yared
Filed under: Forecasts, Rants and Raves, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), Cisco Systems (CSCO)

My BloggingStocks colleague Jon Ogg wrote a piece stating that CNBC's Jim Cramer believes Google (NASDAQ: GOOG) can go to $1,000, or at least $600. You know what? He is absolutely right. Google is the next Google. Let me explain.

Ever since Google went public in August 2004, two out of every three interviews with analysts or other talking heads, whether in print or television, have been pooh-poohing Google as "too expensive" or "it has to slow down" or "it's not sustainable." Get real. These talking heads come right back with their heads shaking after every quarterly report. "Yeah, but, but, it cannot continue..." and the same song plays over and over again. Or we hear about some sharp trader that made a quick $5-10 per share "being short Google." Yeah, the short lasted about 2-5 trading days because no one wants to be short Google heading into its quarterly earnings report.

Google is a monster and it still continues to grow and grow. The parallels exist between Cisco (NASDAQ: CSCO) and Microsoft (NASDAQ: MSFT) during their go-go days, but there are stark differences. Many a portfolio manager or other talking heads missed the major movements in both Cisco and Microsoft because they could not believe the growth rates were any where near sustainable. The growth rates defied gravity for almost 10-12 years running. The world was spending a fortune on technology infrastructure and these two were the leaders.

Google is in the same position -- only it's bigger. The world into which Google sells is virtual. Microsoft and Cisco sold and delivered physical products that needed to be installed and maintained, thus causing some limitation to unfettered growth. Google sells in the virtual world and its customer base is massively larger than Cisco's, and, arguably, Microsoft's. When Google came public many were saying "it might be the next Microsoft." Ladies and gentlemen, I have an announcement for you: Microsoft can only hope to be the next Google!

Google IS now the table setter. As Cisco saw many wannabees and "Cisco-killers" fall by the way side, Google is experiencing the same phenomenon. Yahoo! (NASDAQ: YHOO) has been a successful story in its own right and time, but it cannot compare to the prowess of Google. Yahoo can only hope to catch the backdraft cause by the Google speed machine and it gets pulled along. The Microsoft MSN network is viable, but it's not Google. Google threw Microsoft up against the wall by acquiring Doubleclick first, forcing Microsoft to pay up hugely for Aquantive (NASDAQ: AQNT). I had been recommending AQNT to my web site members since $19 believing it was worth $45 on its own earnings growth and maybe $50-52 if acquired. Microsoft was held-up as it is paying $66.50 per share--all caused by Google's pre-emptive strike on Doubleclick. The game changed fast as Microsoft is indeed trying to catch Google.

The entire internet advertising/digital marketing sector is massive and global in size and scope. Putting a verifiable growth rate is difficult and ever-moving. The search engine sector is also in the same boat. Google is a huge growth company IN A huge growth market and they are taking market share. That's why Google shocks the investing world nearly every quarter with stunning numbers and raises forward earnings and revenue guidance.

For comparison sake, think of the restaurant industry. The industry's growth rate is arguably between 4-6%: half from menu-price increases and half through organic growth. Any concept experiencing growth above 6% is taking market share from some other concept's hide. Yet even share gains are limited to physical bricks and mortar locations.It is almost a zero-sum game.

The search engine and internet marketing/advertising space is growing at a 40-45% rate, and even this number is difficult to calculate because of so many moving parts. Google intellectually leads the space and continues to take market share in a growing space. The sustainability of the internet marketing/ advertising sector is still very early in its development because the Global 1000 is just "getting it" and Web 2.0 is also just beginning.

So, where can Google go? $1,000? $900? $800? Whatever you pick, just understand that it will most likely be higher in price one year from now then the current price of $474...

Georges Yared is the CIO of Yared Investment Research where he explores more growth stock ideas.

Tags: blue chip, blue chips of 2017, BlueChip, BlueChipsOf2017, goog, google, microsoft, msft, the next, TheNext

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Reader Comments (Page 1 of 1)

5-25-2007 @ 7:53AM

Michael Schneider said...

I think you are right on this. Chicago Tribune recently published an article about 5 Innovative Tech stocks and searching for the next Google- including Google among the possibilities. The item is posted in the Trends section at http://www.Barrelomoney.com. There are also some Google items in the Internet Stock Update section there. It wasn't that long ago that everyone was looking for the next Microsoft and the next Walmart and it seemed like nobody found either though many net stocks gave spectacular returns in a short time. Google has the possibility of giving that kind of consistent year after year growth though and it looks reasonable except for the legal problems that could change things pretty fast.