In Google We Trust: Financial and Future Catalysts Review
May 3, 2007 by Martin Lerda
So much is written about GOOG, so often, that one wonders what is left to say. It’s obvious to pretty much everyone that follows the name that they are masterful at finding growth in the un seemingly areas of the web. Examples vary, from Google Analytics, to Google Trends, to their anti-Microsoft suit of office products. In short, Google’s true value lies in the functions that are almost unknown to most. Speaking for myself, I became a Google believer once I was guided by a friend of mine through the many functions it has to offer. Needless to say, I became such a believer that I felt compelled to write about them.
The numbers really need very little interpretation:
• EBITDA margins upwards of 40%
• Revenue growth of 50%+ in 2007, followed by more than 30% for 2008 and 2009
• Cash and cash equivalents of more than US$11 billion
• Expected EPS revisions of 5 to 6%
• Accelerating free cash flow growth to 80%+ year over year
Catalysts such as rapidly increasing demand for search and display advertising (exemplified by YouTube and Double Click acquisitions). Partnerships that are bound to pay off with eBay, MySpace, etc. And last but not least growth from new advertising formats such as video, mobile, and pay per acquisition.
Performance of Google shares vs. S&P 500 since IPO
Granted the company trades at a lofty price/earnings of 44x (which in my mind seems cheap to pay for growth rates of more than 30% for the next 3 years). Look, I am not sharing anything new, nor am I saying to rush and buy Google shares. I just believe that the guys running Google don’t necessarily follow any type of template for growth. They set the trends, they set the standards of what and how the internet is developing. I invite you to just simply take a chance and start using some of their many functions, become a believer like me. Don’t dwell on the price of the shares; just remember that Google will continue to drive the news flow of what is hot in the internet for years to come.
Martin Lerda is a senior investment banking analyst at a major Wall Street institution. Any questions or comments can be directed to martin.lerda@gmail.com. Or simply take a look at his financial musings on Anablogging
