What do you joe broni's think of Google?

[Guest Bronco]

Me - I think WS is ridiculous.  A miss of a couple cents on a $500 stock.  Who cares?

 

Revenue beat.  Expenses were up b/c they are hiring to grow the business. 

 

I don't even care about the quarter to quarter to quarter to quarter nonsense.  A lot of noise.

 

This is a franchise that now has google search, droid, you tube, and much more.

 

I usually am not a big tech investor but Google is a growth company trading at a crazy valuation.  The only thing I don't like is some of the real crazy businesses they are in (solar powered lawnmowers on the horizon?)

 

I know this isn't as exciting as level 3 or RIM or any of the other shitty businesses, but the overreaction from WS is mind boggling to me.  I am starting a position this morning, and will be building as people live in a ST world.

[link01]

Me - I think WS is ridiculous.  A miss of a couple cents on a $500 stock.  Who cares?

 

Revenue beat.  Expenses were up b/c they are hiring to grow the business. 

 

 

yea, maybe so. i remember amazon last qtr provoked the same short term reaction for similar reasons....followed by a quick re-evaluation!

[DCG]

Me - I think WS is ridiculous.  A miss of a couple cents on a $500 stock.  Who cares?

 

Revenue beat.  Expenses were up b/c they are hiring to grow the business. 

 

I don't even care about the quarter to quarter to quarter to quarter nonsense.  A lot of noise.

 

This is a franchise that now has google search, droid, you tube, and much more.

 

I usually am not a big tech investor but Google is a growth company trading at a crazy valuation.  The only thing I don't like is some of the real crazy businesses they are in (solar powered lawnmowers on the horizon?)

 

I know this isn't as exciting as level 3 or RIM or any of the other shitty businesses, but the overreaction from WS is mind boggling to me.  I am starting a position this morning, and will be building as people live in a ST world.

 

Agreed. The funny thing is that Google doesn't give guidance. Analysts of course make up their own number. Instead of it being perceived as the stupid analysts being wrong, it's Google's fault.

 

They're still growing the business at a strong pace. But of course wall street is buying up companies (like one that you mentioned) that are losing millions of dollars after it buys another company losing millions of dollars.

[S2S]

Is ~ 15x cash flow really "crazy valuation"?

 

The concern here is that they're spending like a drunken sailor. Perhaps they have to, given Google's current status as THE PLACE from which Facebook/Twitter/other Valley startups poach talents. Consider this excerpt:

 

"Dorsey came back to Twitter after the company had tried and failed to lure two senior product managers from Google. In both cases the company was fairly close to closing the deal when Google made counteroffers, showering them with restricted stock grants that are reported to be worth more than $50 million in each case. (Clearly, product people are in high demand in Silicon Valley.)" (http://tech.fortune.cnn.com/2011/04/14/troubletwitter/)

 

The corollary is that when they stop spending, operating leverage will emerge in a big way with continued 20%+ revenue growth. But will they, now that Larry Page, an engineer, is running the show?

 

On a related note, I'm all for Google's using their vast resources to spur innovation. "The best minds of my generation are thinking about how to make people click ads" (http://www.businessweek.com/print/magazine/content/11_17/b4225060960537.htm). That does suck.

 

[Guest Bronco]

S2S - I think it is a crazy valuation, when you consider their balance sheet, cash flow, revenue growth, and businesses.  I appreciate the "drunken sailor" mindset - it will allow me to buy cheap shares. 

 

Some people may call it expanding the business.  Just because the company doesn't manage their earnings and invests when they deem appropriate, doesn't mean the business is suffering.

 

WS is way too ST oriented.  And I am buying this drunken sailor.  And I will be right in the LT.

 

[Guest valueInv]

I would keep away from the stock. There are too many downside risks and you have to make a bet that they will overcome all of them.

 

Plus, they have not been well managed in the past. You have to make a bet that Larry will fix that while keeping the growth rate steady.

[Guest VAL9000]

valueInv,

 

What are the downside risks that you can think of?

 

Can you explain what you mean by "not being well managed" ?  What's the evidence here?

 

[Parsad]

Nice title Bronco!  Way to butter us up.   ;D

 

You're an author and the spelling is "giabroni"!  As per the "Urban Dictionary":

 

giabroni

 

A guy. A somewhat dopey, common man. An everyday normal guy.

 

Take a look at those two giabroni's changing that tire!

 

gabronie gibroni gabroni guy dude dope

 

By the way, we'll be up two nothing after tonight.  Did you guys win your first game?  ???  Cheers!

 

 

[Guest Bronco]

Although I didn't know the spelling off the top of my head, the "Joe" was a little play on words. 

 

Plus, I type these messages fairly fast and grammar/spelling is always pretty bad.

 

Flyers suck.  They have sucked the last month.  What can I say.

 

Vancouver is clearly the team to beat in the west, and maybe the whole conference.  It could be Washington in the East, although I am simply shocked that the Penguins are stronger than ever without Malkin and Cindy.

 

Even with the Flyers sucking playoff hockey is simply awesome.

[Parsad]

Even with the Flyers sucking playoff hockey is simply awesome.

 

Yup, couldn't agree more.  The players and fans turn it up a whole notch at this time of year.  Cheers!

[Smazz]

I love the Joebroni reference.

 

Oh, and the Sharks never seem to have a boring playoff game.

 

Maybe it has something to do with the team being 90% CDN? ;D

[DCG]

I would keep away from the stock. There are too many downside risks and you have to make a bet that they will overcome all of them.

 

Plus, they have not been well managed in the past. You have to make a bet that Larry will fix that while keeping the growth rate steady.

 

What risks? Is Yahoo! going to take over their search business?

 

And not well managed? What are you talking about? I don't know how Page will do, but Google has been one of the best run companies on the planet for the last decade or so under Eric Schmidt's leadership.

[Guest Bronco]

All the fear stories are piling on.  Just like Apple - the phone doesn't work, the Ipad is a piece of junk no one will use, etc. etc.

 

Now it is spending fears.  As far as I know, this is still a great place to work for people different than me (i.e. smart people).  And I bet they pay well.

 

This company may be a little too much "throw it against the wall and see what sticks".  But keeping aside for a second it is technology, I can't get that long-term franchise model that Buffett uses out of my head.  The moat on their search business is awesome.  Youtube may fade some day but it is a nice asset.  They are the #1 software provider for phones, which ties directly into their primary business (advertising). 

 

Companies like Apple and Google should thrive in the future as they can/will reinvent themselves.  They simply have the cash to do it.  In the meantime - tons of cash flow. 

 

Good weekend to all you Joes.

[S2S]

Bronco - if one replaces "Apple", "Google" with "Microsoft", at any point over the last 10 years, your above post would ring equally true.

 

There're virtually no limits to how long well-run businesses stay around. Whether one makes money in stocks of such companies, however, is a different animal.

 

I don't know how Page will do, but Google has been one of the best run companies on the planet for the last decade or so under Eric Schmidt's leadership.

Agreed.

[Guest valueInv]

valueInv,

 

What are the downside risks that you can think of?

 

Can you explain what you mean by "not being well managed" ?  What's the evidence here?

 

 

Here are some off the top of my head:

 

Advertising: People tend to focus on Google as a search company. Its not. Its an advertising company. Its finances depend on how well its advertising business does. Today, an advertiser allocates some of its total advertising budget to traditional media (TV, newspapers, etc) and some of it to online. The online budget in turn is allocated to search advertising, display and other channels. If other channels grow quickly, it takes away the budget from search and hurts Google. Turns out there are a number of other contenders. Facebook is ramping up its display advertising business and they will speed it up even more once they go public and have to show even more growth. Facebook has the potential to target ads more effectively because it has far more information about you than Google does. There is potential for Twitter to take away share in advertising too. Groupon is also a threat. I have heard that Google's ad sense was built on small business advertising. To these customers, companies like Groupon are another way to spend their marketing dollars. And Groupon is growing like crazy - supposed to hit $2B this year and Livingsocial at $1B this ear. All of these companies can take away budget from Google and result in lower bids for adwords.

 

If Google doesn't get these dollars, it doesn't matter as much how much search share they have or how many Android phones they sell, if their primary mode of monetization is advertising.

 

Search: They are likely to dominate but Bing is slowly gaining share and remains a potential threat.

 

Regulatory Issues: It seems likey everyday that Google gets hit with some soft of action on antitrust or privacy issues. All these could put it at a disadvantage and slow it down, make its ad targeting less compelling than competitors. This just in today:

 

http://gigaom.com/2011/04/15/google-faces-new-antitrust-accusations-in-south-korea-over-android/

 

Acquisitions: They are blowing money like crazy. Word it that they offered $10B for Twitter and $6B for Groupon. Both turned down. They pay relatively large amounts for small company acquisitions that are simply add on features. For example, they bought a company from someone I know for about $25M. For this they got a couple of features and the talent. It would have been much cheaper to hire people and build it (but a little slower). Many of their acquisitions fail. If they make bigger acquisitions, they risk destroying bigger value.

 

They acquire about 20 companies a year. Over the long term this strategy results in a lot of cruft and a unmanageable company. Look at Yahoo, they followed a similar path. I don't think this is good management.

 

Employee Retention: I work in the Silicon Valley and see them bleeding employees. Many people are not happy there. They are paying increasing amounts for

employee retention. Word is that to keep two senior employees from leaving to Twitter they paid them $100M and $50M in stock. I've hear of engineers getting $3M of stock.

 

They are also losing some of their sheen as an "open" company. This is only going to make it worse.

 

Focus: They lack it. They have a huge number of failed products - Googlebase, Google Health, GoogleTV, etc. They are everywhere from bandwidth to clean energy to phones to payments to bond trading and on and on. They were bidding on spectrum a few years ago. They have built a driverless car. Many of these add to cost and not to revenue. While their advertising business is growing , no one notices but once it slows down, WS will be asking questions.

 

At the core, they have a fast follower strategy. They copy products made by Apple and other companies and make money by commoditizing them. When they do try to innovate, their track record is not as good as evidenced by many failed products.

 

Organizational: Larry is reorging the company. He is supposed to have put decision making back to engineers and has tied everyone's bonuses to social networking products. He is right that their future depends on it but I wouldn't bet on them succeeding. They have already failed with Orkut and Buzz. I don't think its their core competency. I don't think that the anti-social engineers that Google hires are going to come up with right features to get people to share. They are going up against a giant Facebook in a business with extremely strong network effects. In effect, Larry has incentivized everyone to focus on a direction where their odds of success are very low. The risk is that other products will be neglected and they will have even less focus.

 

[Guest VAL9000]

Thanks valueInv.  You bring up some very good points on the challenges that the Goog is facing.  I agree with everything you've said, but I think that some of it needs to be put into greater context.

 

Advertising: I'd break this down by search and display.  Search continues to be Google's bread and butter (roughly a 2:1 ratio of revenue for search:display), but display advertising is growing faster as per latest Q.  I think Facebook presents an incredible competitive challenge for display dollars.  The search dollars, though, are really only up for grabs by Bing.  These advertising tools are different than display ads.  I think they're not as correlated to the business cycle because they target people's intentions, rather than demographics.  But I think the overriding trend in Google's favour in both business lines is the growth in digital advertising, both from cannibalizing TV/Print/Traditional Media ads and from new advertising techniques that only exist in the digital realm.  The push for social is directly related to gaining ground on user demographics, which means it's directly related to defending / gaining market share in display advertising.  This is easily the most important priority and good on Larry for making it so.

 

Focus: I agree, they are branching out in a lot of different areas.  But as opposed to a risk, I see this as part of the strategy.  Google recognizes that you've gotta have 99 failures for every 1 success.  Google also doesn't care about public failures, something that I admire them for.  It takes courage to put time and energy into a product like Google Wave, release it, and then kill it.  It's very public and it's seemingly embarrassing, but I'm not embarrassed for them.  I can see that they're trying to cook up winners and losing is just part of that process.  Acquisitions fall into this category, too.  I've always suspected them of overpaying, but valuing tech is really quite hard and the penalty for missing an acquisition can be devastating to your business.

 

I don't think it's fair to say that they have a follower strategy while at the same time fault them for investing in dozens of unrelated, nascent businesses.  Tech is an incredibly competitive business.  All the smartest people in the world are working on trying to eat your lunch.  The only way to defend yourself is to spend a ton of cash, every year, and pray for winners.

 

I'll also reiterate from the RIM thread that I don't have any position in GOOG, RIM, MSFT, etc., mostly because these companies are too complicated and the environment too unpredictable for me to pick long-term winners.  But I will say that Goog is starting to look really cheap, so my position might change on that.

 

[DCG]

There's a lot of nonsense going on in the market right now. Google has a real strong quarter, growing by 19% and has $15 billion taken off it's mark cap. Yet Zipcar, a 14-year-old company that has yet to make a profit and has earnings of only $4 million a yea, goes public and is valued at a billion dollars.

 

I'm starting to hear/see a lot of chatter recently about how earnings don't matter anymore (even a bit on this board), which worries me.