Tuesday, February 28, 2006

GOOGLE

GOOG is plunging on big volume as the CFO, speaking at a Merrill Lynch conference, is saying that growth is slowing in search and that the company will have to find other ways to boost revenue. He also says that local and mobile products offer "a lot of opportunity".

The fact that Google is slowing from its torrid pace is obvious. Even the CFO went on to say that the slowing is due to the "law of large numbers" and the the slowing growth won't be "precipitous".

I think the 10% drop is an overreaction, unless the company is in danger of not making its earnings estimates. So we'll have to see what the trend is going forward for next year's earnings projections. But if the continue to be in the neighborhood of $12, then the stock is not expensive at 30x EPS.

long GOOG

3 Comments:

At 8:26 AM, Blogger Michael said...

Well they missed last quarter... :-)

 
At 11:50 AM, Blogger David H said...

My question is why should we put a 30 multiple on 2007 earnings when 2006 is only 2 months old? 2007 earnings will not be in for 22 months. And by saying 30 times 2007 earnings, are we assuming that 2008 earnings will be 30% above 2007? I can understand better putting a multiple on the expected next 4 quarters earnings. But to skip a year just to make the price more reasonable is what gets everyone into trouble...

 
At 12:20 PM, Blogger J. Kahn said...

Michael is right, they did miss. Although they missed Street est., since mgt. doesn't give guidance.

As for David's remarks, I agree there too. It is a bit early to look at 2007 numbers. I usually start to look at next year's numbers once we get in the second half of the year we're currently in.

But if I am trying to come up with my 12-18 month price target for GOOG, then I will run through the analysis of what I think the stock can trade at based on 2007 EPS. While the stock could hit my price tgt. ($450) this year, it would be stretched at ~50x EPS.

 

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