SEL: Can Google Reach $300?

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Search marketing in the new media era.

June 01, 2005

Can Google Reach $300?

BusinessWeek looks at the growth of Google's stock price and asks whether the company can keep on, keeping on.

...while its stock price has rocketed 226%, to $277, several analysts and investors think it has plenty of upside left. On May 31, Piper Jaffray became the latest investment bank to slap a $300 price target on the search kingpin. That would put Google's market capitalization at a staggering $83 billion, dwarfing corporate titans from Boeing to Ford to McDonald's.

Need evidence that Google is not a big ol' bubble waiting to burst? The article offers...

...while Yahoo's 2005 price-earnings ratio is 65, Google trades at 54 times its expected earnings.

...when you factor in the growth rate, it's actually quite cheap

...net profits, which jumped 277% last year, are expected to climb an additional 250% this year, to $1.4 billion

...some analysts and investors, however, believe that Google could raise [its] minimum bid to 10 cents per click, dramatically boosting revenues, without losing too many marketing customers...such a move would lift Google's top line by about 30%

True, but it would do nothing to help Google's "do no evil" image. Raising the minimum bid to 10 cents would be done for no other reason than pleasing Wall Street and lining Google's pockets. Nothing wrong with that, but it would hardly help foster the "warm and fuzzies".

The article also points to Google's growth into new business models including display ads and portal features. Yet despite this diversification, investors should be cautious of investing in what BusinessWeek recently called "a one-trick pony".

Despite the promising developments, the stock still comes with plenty of risk. For starters, Google is a one-dimensional business, with nearly 98% of revenues coming from simple text-based ads that mostly adorn search-results pages. Yahoo, by contrast, boasts sizable search- and display-ad businesses, not to mention myriad subscription services, from online personals to fantasy sports.

Andy Beal | permalink | +marktd |

...the search industry queries new media