Dot Com Bubble Burst 2 coming up?

[SirFozzie]

This time when it bursts, it's going to be like a nuclear bomb that's named Google.

Came across this story today:

Google and its cavalcade of adoring analysts look set to pump 2006 full of the same unbridled optimism that dominated 2005. Or so we predict after seeing Piper Jaffray analyst Safa Rashtchy hike his target on the ad broker up from $445 to $600.

And, why not? The analyst expects "new initiatives, in particular Google's ad network and Google Base, to generate meaningful revenue be the end of '06." Such bright prospects mean Google should maintain its current momentum and reach a new 2007 earnings per share target of $11.91 set by Rashtchy.

Many of you are probably rolling your eyes at this point. After all, it was about six years ago to the day that another financial analyst predicted Yahoo! would hit $600 per share. That never happened despite Yahoo! sitting at about $500 when the report was issued.

Rashtchy, however, doesn't think he's being irrational. The $600 target is derived from a 50x earnings model that the analyst sees as being consistent with other major technology players.

"We believe Google is an iconic company that, like Microsoft and eBay before it, has defined a new and vital industry," the analyst wrote. "Such market leading technology companies have traditionally traded with peak valuations in the 50x-60x range. eBay, for example, has traded between 38x and 158x its one-year forward earnings estimate since 2000 with an average forward multiple of 70x. Even excluding the bubble years of pre-2001, eBay had maintained a multiple generally above 55x."

Just in case you're curious, here's the disclosures section of the analyst's report.

* Piper Jaffray was making a market in the securities of Google Inc. at the time this research report was published.
* Piper Jaffray will buy and sell Google Inc. securities on a principal basis.
* Piper Jaffray has received compensation for investment banking services from or has had a client relationship with Google Inc. within the past 12 months.
* Within the past 3 years Piper Jaffray participated in a public offering of, or acted as a dealer manager for, Google Inc. securities.

Now that's a surprise.

And why did the analyst firm shoot straight for $600 instead of going with a lower estimate such as $480 first? Well, that would have been a major bother.

"While the stock may have its ups and downs throughout the year, we believe it will reach $600 by the end of 2006 and we prefer to have one 12-month target rather than raise it every quarter," Rashtchy wrote.

And surely the analyst must have pointed to the obvious risks like the already insane amount of hype being heaped upon Google and the fact that none of its new non-search franchises are all that innovative or unique and that rivals such as Microsoft and Yahoo! have made Google an even larger target and that Google's search engine results have been watered down by partnerships and blog noise. Yes, the analyst noticed some of this.

"Risks include competition, increasing traffic acquisition costs, loss of key partnerships, slowing search growth and potential for margin declines."

So there you have it.

[Logan]

Google won't crash. It's skyrocketing independently of the market, which isn't what happened with Yahoo. That stock went up (and came down) with everything else.

[Airhog]

As long as they don't split their stock, or release a ton of shares, their stock could definately reach 600

[Maple Leafs]

Unlike most of the late 90s dot-coms, Google has actual revenue streams, not to mention a business plan.

[Crapshoot]

More than that - Google has foresight. There is a risk of course, but the idea that Wall Street is governed by strict models is ridiculous - there are definite pie in the sky valuations, and some that will remain so.

[Logan]

My biggest question with Google is...who is making the decisions? Is a lot of their strategy developed by former programmers who are moving up the chain? Or have they started bringing in enough "business people" with solid experience developing companies? I have a friend who works in the NY office, and he says (at least from what he sees), its the former. Which could be a concern.

[Crapshoot]

My biggest question with Google is...who is making the decisions? Is a lot of their strategy developed by former programmers who are moving up the chain? Or have they started bringing in enough "business people" with solid experience developing companies? I have a friend who works in the NY office, and he says (at least from what he sees), its the former. Which could be a concern.

Without going to far into it, its a combination - and way too many business people don't know anything worth a damn, especially because they can't grasp the scale that Google's looking at. and I say this as a business/finance major. :D

[cthomer5000]

Unlike most of the late 90s dot-coms, Google has actual revenue streams, not to mention a business plan.
Bingo. No debt and tons of revenue, the sky is the limit for Google. I only wish I had the money to buy some at the moment.

[Logan]

Bingo. No debt and tons of revenue, the sky is the limit for Google. I only wish I had the money to buy some at the moment.

What about the possible overextension of their business into areas that they don't really have expertise in? I mean...there's talk of Google buying a friggin movie studio. Again, its success/failure would have everything to do with if Google incorporates all these acquisitions into their actual strategy, and isn't just buying because they have all this extra cash laying around.

(By the way, all my concerns are in a "devil's advocate" way, as I already said I think it will continue to skyrocket and not be susceptible to a market crash like we've seen in the past)

[cthomer5000]

What about the possible overextension of their business into areas that they don't really have expertise in? I mean...there's talk of Google buying a friggin movie studio. Again, its success/failure would have everything to do with if Google incorporates all these acquisitions into their actual strategy, and isn't just buying because they have all this extra cash laying around.

(By the way, all my concerns are in a "devil's advocate" way, as I already said I think it will continue to skyrocket and not be susceptible to a market crash like we've seen in the past)
I think you've got some bad info there. The google founders are independently helping finance a movie, completely outside Google. I've heard zero about google buying a movie studio.

I think as long as they don't jump into anything recklessly, they'll be fine. Everything they've done so far they has been oustanding. They've but a brand name, and i think that's going to allow them to kick down some doors and work their way into other areas. There are rumours they're about to unveil a PC(s), but they seem to have denied that as well. I'm not sure what there next movie is going to be, but barring some awful mismanegement the next few years should be very good.

[cthomer5000]

By the way, this stock is unbelievable right now. Up almost 20 during trading hours yesterday, and currently up another 8 in after hours trading before the market has even opened up today.

I wanted to buy it when it hit 425 yesterday, finally believing it would easily hit 500. It's now at 443 and still climbing.

[moriarty]

Unlike most of the late 90s dot-coms, Google has actual revenue streams, not to mention a business plan.

Regardless a 50x earnings model is tough to justify for any company. Buyer beware on this one I say (or at least be sure to get out before it returns to normal).

[CraigSca]

We should all pool our money and a buy a share :D

[st.cronin]

I would be worried about Google. I think in general the market is still somewhat overpriced, even after the dot com bubble pop.

[SirFozzie]

The problem is, that the surge in tech stock startups is because VCers hope to get bought out by Google. What happens when Google no longer buys other companies>?

[Marc Vaughan]

Personally if I was going to purchase tech stock I'd prefer Ebay over Google myself.

Google has a very competitive and potentially vunreble(sp?) marketplace for its main business, if a better engine comes along then people will leave it in droves extremely quickly leaving it largely high and dry.

This has happened in the past with Yahoo (remember them?) and various others, with Microsoft in amongst the people looking to topple them they're not particularly a share I'd opt for.

Ebay on the other hand have a huge niche market which is very hard for anyone to penetrate into, partially because of their partnership with companies like Paypal etc. but also because its one market which would take time for loyalties to move people from it, simply put people will go there because there's a huge amount of listing, because there is a huge amount of buyers people will list their stuff ... nice cyclic buffer which only falls over if their servers do really.

Ebay are also investing into other more risky ventures (as are Google) which may or may not turn out to be extremely lucrative ...

But its the 'core business' which gives a company its stability and thats why I'd prefer Ebay.

(disclaimer - I own didly squat shares, so I'm hardly talking from experience - if someone wants to lend me a couple of hundred dollars so I can talk from experience that'd be great ;) )

[cthomer5000]

Regardless a 50x earnings model is tough to justify for any company. Buyer beware on this one I say (or at least be sure to get out before it returns to normal).
Well, I'm looking at the short-term. I would want to get in and jump out when it hits 500. Anyone who buys and just waits, waits, waits is asking for trouble with virtually any stock.

[st.cronin]

I'm with Marc. Ebay makes much, much more sense as a business model. Google is obviously a well run company, but I don't see how they can grow large enough to justify their price.

As for short-term, long-term, smart people buy stocks and never, ever sell them.

[JeffR]

Ebay on the other hand have a huge niche market which is very hard for anyone to penetrate into, partially because of their partnership with companies like Paypal etc. but also because its one market which would take time for loyalties to move people from it, simply put people will go there because there's a huge amount of listing, because there is a huge amount of buyers people will list their stuff...

Add to that the effect of the feedback histories that have been built up over time. Buyers like to know that the person they're buying from is reputable, and sellers have spent years building good reputations. Convincing people to start with a blank slate or buy from people without knowing their transaction history is a nasty barrier for any potential competitor to eBay to get over.

[moriarty]

Well, I'm looking at the short-term. I would want to get in and jump out when it hits 500.

You do realize that going from 400 to 500 is like a 25% increase? It's no different than buying a $20 stock and selling it at $25. I'd rather have a $20 stock on the rise with a more realistic earnings multiple, but that's your call.


Anyone who buys and just waits, waits, waits is asking for trouble with virtually any stock.

Actually pretty much anyone with investment experience will recommend a buy and hold strategy (maybe not forever but for the long term) for all but the most aggresive investors.

The S&P over the past 50 years has averaged roughly an 8-9% return ... even most professionally managed funds are lucky to average that high over 10 years. Many studies suggest you're much better off in the long run buying a spider fund or something that follows the general market than trying to ride the wave of each hot company. It's hard to know your at the peak of the wave until it starts to fall.

Not to say you won't make money though, and if you're looking for short term gains (to spend say, but not necessarily re-invest) then go for it. Good luck.

[cthomer5000]

You do realize that going from 400 to 500 is like a 25% increase? It's no different than buying a $20 stock and selling it at $25. I'd rather have a $20 stock on the rise with a more realistic earnings multiple, but that's your call.
Yes, I'm well aware of the math. But this appears to be a situation where it's going to be damned easy to get in, make some quick money (a 25% gain is fantastic, especially since it'll likely be in just a couple months at most), and sell off.

And if I had the money at this moment, I'd do it. I think I'm going to be a couple months too late.

[Tekneek]

Ebay on the other hand have a huge niche market which is very hard for anyone to penetrate into, partially because of their partnership with companies like Paypal etc.

FWIW, Paypal is more than just a partner. It is now an eBay company after being acquired in October 2002.

[cthomer5000]

By the way, this stock is unbelievable right now. Up almost 20 during trading hours yesterday, and currently up another 8 in after hours trading before the market has even opened up today.

I wanted to buy it when it hit 425 yesterday, finally believing it would easily hit 500. It's now at 443 and still climbing.
Trading at 462 now and still moving. This has been a ridiculous week.

[Logan]

Trading at 462 now and still moving. This has been a ridiculous week.

And I continue to be jealous of my friend who has been with the company for about 6 months (and therefore can buy 1000 shares a year for 4 years at the price of the stock when he got hired - $285).

[Craptacular]

We should all pool our money and a buy a share :DWe might have to sell the aircraft carrier.

[sterlingice]

Damn, damn, damn. I was planning on living on the carrier this year :(

SI

[Craptacular]

Damn, damn, damn. I was planning on living on the carrier this year :(

SIYou could probably downsize to Brett Favre's old house.

[DaddyTorgo]

this just inspired me to check on a long term stock that i had been holding onto. company that makes body armor for the military and stuff that i bought on the recommendation of a stockbroker family member. Yeah, that was a bad idea to check. Fortunately I didn't need the $ cuz the stock has gone from 14.36 to 4.16. So I'm down 1k on it. Fortunately it was money I got from selling stock options that were given to me from work anyways, so it's not a HUGE deal

[BuffaloHuskey]

Google is trading at a high multiple, but the market is seeing higher multiples today than they have in the past. Part of what is driving this is the imergence of private equity groups who are paying rediculous multiples on there acquisitions. Money is cheap right now which is allowing them to do so. In addition, there are many companies out there right now that are in surplus cash positions, and the shareholders are clammoring for a piece of this. I think the cash positions of many of these companies is pushing them towards non-core business acquistions because they do not want to shoot the money straight to the shareholders

[dacman]

I wonder where that projection is now? :)

[cthomer5000]

I wonder where that projection is now? :)Let's check back later in the year. This is a market wide sell-off right now, the Dow has dropped like a rock in the last week. Every single stock in my ticker right now is down on the day, that's how wide-spread this is.

[sterlingice]

Isn't it a little early to be looking at long term stock prices?

SI

[cthomer5000]

Back up to 443 two days after people thought the sky was falling.

[Logan]

Back up to 443 two days after people thought the sky was falling.

Earnings will be released Jan. 31st. I'm betting on the numbers being higher than estimated (unlike all the other big techs that just announced their earnings will be low), and the price hitting $500 by Feb 6th.

[cthomer5000]

Earnings will be released Jan. 31st. I'm betting on the numbers being higher than estimated (unlike all the other big techs that just announced their earnings will be low), and the price hitting $500 by Feb 6th.
http://www.operationsports.com/fofc/images/smilies/redface.gif Google is getting fucking hammered right now. Down 67 points ... AFTER HOURS! Lordy!

[cthomer5000]

I think this is what happenes when "better than expected" earnings are already priced into the stock, and then the actual earnings are disappointing. The drop is probably a magnitude greater than it would have been otherwise.

[Logan]

I think this is what happenes when "better than expected" earnings are already priced into the stock, and then the actual earnings are disappointing. The drop is probably a magnitude greater than it would have been otherwise.

Yeaaaaah...safe to say I was wrong.

[SirFozzie]

heh.

Ouchies.. the loss wipes out $20 Billion in Google Value So Far

[kcchief19]

This is a phenomenon that befuddles your average American and makes investing look like witchcraft to your typical non-investor: Google's stock plunged even though the company made 82 percent more money 4Q '05 than they did in 4Q '04 and made 86 percent more money last year than they did the year before simply because a handful of nimrods that run forecasts for brokerage houses thought that Google would more than double their profits.

Can you imagine posting an 80-some-odd percentage increase in profits and see your stock plunge 15 percent simply because some clowns thought you would double your profit? I realize it happens all the time in the market, which explains a lot about how our economy operates.

[SirFozzie]

because not only did the yoyos in the brokerage houses think Google could turn water into wine..

The average investor saw Google beat the Wall St # five straight quarters.. and hoped that google could turn water into Dom Perignon.

When the best Google could manage was water into grape juice.. (whissssstlleeeee- THUD)

[st.cronin]

All this proves is that short-term trading is a sucker's game (unless you have inside info). Google is still a good company, and as safe an investment as you can find.

[Whar]

Google dropped ~16% today on a weak earnings reports. It lost like $66 per share. Damn!

[sterlingice]

Google dropped ~16% today on a weak earnings reports. It lost like $66 per share. Damn!Eh, $66 is nothing ;)

http://finance.yahoo.com/q?s=BRK-A

SI

[cthomer5000]

Yeaaaaah...safe to say I was wrong.
No, I disagree. We're not talking short term, but long-term google is going to be just fine. It had already regained 18 points of that loss by the end of after-hours, I would bet that a number of sellers only sold knowing that people would sell in panic, and they could scoop it up 20+ points lower. There is so much psychology involved in trading that it's almost maddening to consider.

It's just a volatile stock, and the last few weeks have shown that. Really, we're going to have to check this thing out in 6 months or so to have a good idea of who is ultimately right.

But most of all I was impressed at just how quickly the downturn came after hours. I think it made that drop (69 points at worst, i think) in about 90 minutes.

[Logan]

No, I disagree. We're not talking short term, but long-term google is going to be just fine.

I really meant with my prediction of beating estimates and hitting $500 by Feb 6th. Just missed on that one.

But I agree with everything you said. It'll be a good long-term stock. As someone said earlier, Google profits only improved by 82% this year.

[cthomer5000]

I really meant with my prediction of beating estimates and hitting $500 by Feb 6th. Just missed on that one.
Lol, ok i missed that specific point. But stranger things have happened...


But I agree with everything you said. It'll be a good long-term stock. As someone said earlier, Google profits only improved by 82% this year.
Exactly! The average joe will read/her about google's stock value plummeting and just think "here we go again." The bottom line is people were just expecting the moon and stars, but only got the moon.

[Tekneek]

The drop with Google is a buying opportunity, IMO. I don't have enough funds available to make a play there, but it is a buying opportunity for those who do. It got hammered by a combination of fools and people who decided to take their money and run (IMO). I don't think there is really anything to worry about there.

[cthomer5000]

It's already regained pretty significant ground from it's bottom. I recall seeing it a 359, and it's sitting at 404.89 right now. By the end of yesterdayr's after-hours trading, it was already moving back upward.

People who were scared sold. Those who knew scared people would sell sold and bought when it dropped a significant amount. And I think a lot of buyers have now come out of the woodwork with the stock "on sale" like it currently is.

I'm too wrapped up in the stocks I hold right now, but If I had additional money I would definitely be interested.

[mhass]

Google is the single fastest growing company in the history of capitalism and is the most profitable company in America right now. And they've yet to develop their international business fully. In the short term, a large group of momentum traders were shaken out with the "miss" in last night's numbers. On the other hand, every sale was replaced today by a large group of institutional investors that had missed the run to 500 and jumped on below 400 just to get it on their position sheets. These folks aren't going to push the stock the way it has in the past. So we're going to see more measured movement in the stock over the next quarter or two. But long term, one share of Google is a quality investment.