Being away from the Internet for a few days, I was surprised to see GOOG trading below 500 for the first time in more than 3 months. They missed consensus earnings estimates by a few cents and the stock has been beaten down around 20% in the last couple weeks.
This is a buying opportunity. There are no signs that Google’s growth will dip below 30% for the next 5 years. Yahoo is a train wreck and Microsoft refuses to take the steps necessary to compete. This last quarter GOOG earned $4.64 per share. At 30% per year, that will be $17.23 per share for the quarter in 5 years or annual earnings of around $69 per share. Even at a PE ratio of 20, that gives us a valuation of $1378 per share. At 30X earnings (about where they trade today) that’s $2067 per share. Even if it trades at a mere 10X, you’re looking at $1033 per share – or more than double what you can buy it for today.
Even if their growth slows to 20% per year, that would still give us earnings 5 years out of $46 a share. At 20X, that’s 923 (still about double what you can pick it up for today).
I’d love to see MSFT get their shit together and start to grab market share. In fact, I know exactly how they could do it and would love to manage the project. But, alas, that’s not going to happen. Even if it does, the writing will be on the wall long enough for any of us in the search space to unload our GOOG shares before the Wall Street firms have a clue.
GOOG is for all intents and purposes a monopoly. They are arrogant dicks to deal with; monopolies always are. But they have the reach, the growth, and the traffic - so we really have no choice.
As long as we know we’re getting fucked dealing with a monopoly, we might as well make money on the proposition. That’s why I’m recommending you put any money you’re not going to need for the next 5 years into GOOG stock.
4 Responses to “GOOG Stock Will Double Within 5 Years”
I’m not sure I’d throw all my eggs in the G basket just yet. The street is really starting to raise expectations for G. Net income just grew 35% to $1.25 billion and that comes out looking like bad news (the stock took a 10% hit). G is no longer getting a premium multiple for being resistant to economic slumps. You may want to save some of that cash for Oktoberfest. 
5 years??? It’s a lot more fun to double your money with WM in 5 days. Slightly more nerve racking though…
>> Google’s growth - 30% for the next 5 years
Where do you think the growth will come from??.
1, Not from gaining search market share - It has only 10-20 points to gain in the US market, most oversees market is tapped out (90% share in most markets)
2, The total search market pie is not growing fast.
3, Not much left to squeeze from eCPM optimization - Most of the growth in the last 2 years came from this sort of revenue optimization (via quality score) than organic traffic growth. IMO, there is not much left to extract in this area
The only area left for immediate growth is display ads - but again this is a low margin business like adsense so it has little effect in the net cash flow.
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Any advice on what platform to use to buy stock in the uk - worth getting a broker or doing it yourself online?