Game Changer: Google hits $200 billion market cap — is $500 billion in sight?
Posted by: in Goog newsFiled under: Major movement, Analyst reports, Forecasts, Internet, Blogs, Google (GOOG), Microsoft (MSFT), Cisco Systems (CSCO), Stocks to Buy, Technology
Today marks the first time that Google (NASDAQ: GOOG) has touched upon the magical market capitalization figure of $200 billion. This is the company that will be the centerpiece of every MBA class 20 years from now, if not sooner. We have never seen anything like this before in the annals of the American stock market, nor anywhere else in the world. The stunning achievements of this 9-year-old company pale in comparison to where it is going to be in 3 years, 5 years and 10 years. Yes, the stock is still a buy — actually a strong buy.
Traditional analysts and investors have attempted to put traditional barriers on Google when analyzing it. Can’t do that, not going to work. Why? Because the world in which Google competes and dominates is so evergreen, that trying to put traditional growth numbers to the industry is nearly impossible. Google doesn’t sell a physical hard product that requires delivery, set-up and training (although a Google phone is on the horizon). It operates in a virtual world — and that’s why many analysts and investors have tried to “temper” expectations. Temper is a fancy word for they haven’t understood the story, have missed the story, and this is why it could become the first trillion dollar market-cap company.
Google does not need “feet on the street” to sell its advertising/marketing/search engine optimization products. Google is easy for customers to understand and implement. Even the great successes of Cisco Systems (NASDAQ: CSCO) and Microsoft (NASDAQ: MSFT) have and had their limitations. Even during the absolute go-go years of the 1990s, Cisco and Microsoft still needed to manufacture, assemble, deliver and set-up its products. The end customer required training and constant updating. Also, their “suite” of products required a capital spending decision usually reserved for the CFO level of most organizations. Google is different.
Customers can crawl with Google before they walk, then walk before they run. The capital spending decision can be incremental in scope and the results are usually noticed by the customer almost immediately. The traffic/ad model is also very quick to adapt to changes in a customer’s marketing plan. Still, no bricks and mortars, just a click away.
Google will earn at least $20 per share for 2008 and analysts will begin to publish 2009 early expectations. Google could earn $30 per share for 2009 as both the market expands and its share of that market increases. Google can command and deserves at least a 30 price/earnings multiple–at least. At a 30 P/E of early 2009 $30 per share earnings, the shares could easily go to $900. With an expanded multiple of 40 times 2009, the stock would be valued at $1200. Yet there will be many who have completely missed and misunderstood this story that will try and find the slightest pimple in the story to attempt to talk it down. That happened with Cisco and Microsoft a lot in the 1990s, as these pundits missed a 20-30 bagger in both names.
Google will always be controversial because of the aforementioned reasons, but do not be fooled, this stock is going higher because it deserves to be higher. The key takeaway is it’s the market share leader, over 50% IN A GROWING MARKET.
Can Google hit $500 billion in market cap? Absolutely, and it will within the next 3-4 years. Traditional analytical work doesn’t work with this company. Like I said, the field is evergreen and virtually limitless…
Georges Yared is the CIO of Yared Investment Research and the author of “Baby Boomer Investing…Where do we go from here?”
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