On the other side of the silly spectrum, the one bullish observer Barron’s includes in its story believes “Google’s revenues could grow to a cool $100 billion, which would justify a long-term target of $2,000 on the shares.” In other words, the magazine implies, people who are optimistic about Google’s future are a little nutty.
That’s funny, because most of the rest of the world doesn’t think so — and the Barron’s article itself has a lot of evidence showing just how rosy the company’s fundamental financials are. Over the past two years, notes Barron’s, Google’s “[n]et revenues have increased more than 300 percent and operating earnings have soared 750 percent.” The company earned $5.70 a share last year, and analysts polled by Thomson Financial expect that number to grow to $8.85 in 2006 and $12.06 in 2007. According to Nielsen/NetRatings, the number of Google Internet searches (the company’s core business) shot up 55 percent last year, and Google has $8 billion of cash on hand to further its expansion dreams.
That sounds pretty darn good to us. Like every company, Google has to plan its future carefully. So maybe Barron’s is right that the company will face increased competition. And perhaps it will have to slow down spending, though with $8 billion cash on hand, the company is hardly at risk of going broke — and, believe it or not, R&D has been proven to contribute to profitable growth.
We suspect that the people at Barron’s know that Google is in good health. But they seem to think that revenues and profits are beside the point. All that really matters is the share price. Why? Perhaps because the viewership of cartoonish talk shows like CNBC’s Mad Money prove that senseless ravings about stock performance — today, this hour, tomorrow morning — is entertaining and profitable.
But the time has come to recognize these stock-price snapshot “journalists” for what they are: financial paparazzi. Their stories get attention — they fuel passions, cause embarrassment, and spark sheepish excuses. They make an impact. But do they make a positive impact? Do they aspire to truth?
Google is a healthy company. It is growing and it is phenomenally profitable. This is an iron fact. It is undebatable. It is truth. And it should have been Barron’s story.
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Well, here you can find a (maybe) interesting article about adwords’ click fraud elimination:
http://www.golan.it/how-to-save-google.php
Cheers,
Posted by simone brunozzi on Fri 17 Feb 2006 at 03:51 PM
This is a ridiculous article. How is Barrons irresponsible for making the case that Google is overvalued? That is what Barrons does. That is what its subscribers pay for. Barrons is not PBS or NPR, which strive for independence in reporting. It pays its columnists to give their opinion on the attractiveness of an investment opportunity. Should it not do that because it may cause a particular stock to decline? That is absurd.
Posted by gigaloser on Mon 20 Feb 2006 at 09:20 PM
This article gets two big things wrong:
1) No one "lost" billions of dollars. Google had the same amount in the bank after its stock dropped as it did before. The only people who have actually lost money are those who bought Google in the last few months (which is the only period when it's EVER been above the current price) and then sold after the stock dropped -- in other words, short-term investors by definition. And in his next column (about Businessweek) the author goes on to attack short-term investors. So which is it? And if those short-term investors want to pay someone to opine on what sort of thort-term trading they might do, write "Barron's" on the top and mail it to them every week, what's it to anyone else?
2) The job of investors, Barron's and the stock market as a whole is not to assess whether a company is good or bad, but whether it's fairly priced. Is a Rolex a good watch? Sure. Would you pay a billion dollars for one? Probably not. If someone was buying Rolexes for a billion dollars and I wrote a column suggesting that might be a bad idea, would you attack me for slandering Rolex without hard evidence?
Similarly, Google's a great company, but the stock can still be overpriced. And the sort of back-of-the-envelope analysis the author mocks is actually not a bad way to think about that. Note that many of these research analysts use equally back-of-the-envelope methods to arrive at their price targets, and they're playing exactly the same game that Blodget used to play. Did the author of this screed actually read any of their research -- or Henry Blodget's site, for that matter, which makes a very calm, well-reasoned case for Google being overpriced WHILE STRESSING that it's still a great company which has been amazingly successful.
As to the larger point -- yes, a lot of the business press is not much better than pornography, but do you want a medal for pointing that out? Don't read it. And if your Google stock drops and you think it shouldn't have, HOLD THE STOCK. Christ.
Posted by pete on Tue 21 Feb 2006 at 10:03 PM
hilariously, this article fails to note UBS's role in Google's September 2005 secondary offering.
Posted by davestoller on Wed 22 Feb 2006 at 02:26 PM