Google Is A Bubble
I don't generally pay close attention to most financial journalism any more because of the incompetence it has come to represent. In the dance between business and journalists, business has clearly achieved the upper hand. Critical journalism would leave journalists without access to the inner crowd and a job, so instead we get mindless chatter, entertainment passed off as journalism and incompetence. There are very few Woodwards and Bernsteins out there.
I do peruse commentary every once in a while to get timely ideas to write about. Contrary ideas. When we have personalities proven to be contrary indicators falling all over themselves to up the price ante on Google, it's time to pony up a short commentary again regarding Google. Why? Because these are the same personalities who issued bullish reports to buy stocks at the market peak in 2000, stocks that eventually fell 90% or went bust. In other words, proven incompetents whose judgement should be questioned when a stock is as overvalued as Google is.
As the pumpers recommend Google and the hedge funds and bubble traders drive it stratospheric simply because they can, let me make a few statements of fact as opposed to gut feel based on irrational exuberance. Valuation has nothing to do with price. I don't care if Google is trading for $5 a share. It's valuation is astronomical. Comparing Google to Yahoo and using Yahoo's inability to catch Google as a rationale for its valuation is a completely false truth and ridiculous sense of security. That may provide temporary support for the stock but Yahoo is dead money and has been one of the worst run technology companies on earth. Those expecting Yahoo to rise from the ashes is senseless. Yahoo can't beat their way out of a paper bag. Yahoo has to prove an ability to transition to a business management team capable of actually running a generally legacy business. Clearly incompetent executives, if you determine competence by market execution and operational talent, have cashed out billions of dollars in shareholder value while running the company into the dirt. Could new Yahoo leadership get the company back on track to viability? Sure. But, don't look for Yahoo to be the Google killer.
Google's dominance will not be challenged by last decade's innovator; Yahoo. Copycats seldom win in the technology business. Just as Google attempting to copycat Microsoft with free desktop applications is completely ridiculous. It doesn't matter if Google now hosts the applications or if one thinks free is more appealing. Microsoft has had that technology for years as they also have had free desktop productivity applications that ship with every PC. It's a distraction from execution in Google's core business and adds little, if any value. Sun has been trying to crack this Microsoft space with Star Office for ages. Is it ironic that Google's CEO is a legacy Sun executive who obviously still harbors the vision of slaying the Microsoft beast? How much money will companies waste by trying to compete with a monopoly as a "me too"? (Sun has smartly given up and buried the hatchet as much as competitors can.)
A proper perspective on a go forward basis is to look at what scientists, engineers or entrepreneurs will develop as a disruptive replacement to Google's business model. And when. A model that has serious risk. Risk that others recognize and will attack. In addition, from a peak earnings perspective, would someone care to tell me what industry spends the most in online advertising? And which industry will be under severe profit pressure for some time? And, how will that affect Google? How will an economic slow down affect Google? Forget about the ridiculous comments made by one of the Google founders that they made the company to be recession proof. That is hilarious. The first company ever created to be so. $5 billion alters one's perspective of reality just a tad. Those are post facto statements of hubris. I have great respect for the founder's capabilities but I know the real story and that's a little like me almost getting a shot to play in the NBA. (I did. I promise.) And as I asked before, how might you tell me Google is going to participate in the next wave of connectivity in the form of portable or mobile access to the net? Are consumers going to put up with ads on their cell phone, handheld device, car or voice recognition system? How does Google make money in Japan as a purveyor of future financial results in mobile access? Not very well might I say. The chance that a few thousand technical minds within the walls of Google will develop the next big thing when there are six billion minds outside of Google is really quite preposterous. Google may remain relevant by purchasing technology or businesses and may actually flourish, but at that point, they would likely remain in a leadership position because of girth. The same reason GM and Ford remained relevant for so long.
Google's management is exhibiting severe hubris with many of their recent business decisions as well as their willingness to diworsify their business model into unproven businesses, areas dominated by other businesses, areas dominated by Google customers, areas where they have no core competency and areas with unproven returns. Sounds alot like GM buying EDS and Hughes in an effort to diversify. New business models are seldom created by existing companies attempting to diversify as diversification is almost always an exhibition of hubris and failure.
Now for valuation. An ability to manufacture money and leverage to drive a stock or stocks higher is not a sign that "the market knows something you don't know". That is complete and utter nonsense perpetrated by people with competencies in basket weaving. That is what they want you to think. Remember the Galbraith quote in the last post. The greatest investor of all time, Ben Graham, would probably commit seppuku before buying Google at its current valuation. Financial journalists and commentariat have a clear track record of buffoonery when it comes to pumping stocks. Google is trading at astronomical levels compared the the average company valuation given to equities in the great bubble of 1929. Bargain it is not.
Google is a great company today. That statement might last for a long time. But, this isn't about being a great company. It is about bubbles and irrational expectations. Bubbles can last for months or years. If you can shut off your brain and ride the wave adeptly, that is great. But, in no way does it mean Google is cheap or something that people should buy as an investment with hard earned money.
I do peruse commentary every once in a while to get timely ideas to write about. Contrary ideas. When we have personalities proven to be contrary indicators falling all over themselves to up the price ante on Google, it's time to pony up a short commentary again regarding Google. Why? Because these are the same personalities who issued bullish reports to buy stocks at the market peak in 2000, stocks that eventually fell 90% or went bust. In other words, proven incompetents whose judgement should be questioned when a stock is as overvalued as Google is.
As the pumpers recommend Google and the hedge funds and bubble traders drive it stratospheric simply because they can, let me make a few statements of fact as opposed to gut feel based on irrational exuberance. Valuation has nothing to do with price. I don't care if Google is trading for $5 a share. It's valuation is astronomical. Comparing Google to Yahoo and using Yahoo's inability to catch Google as a rationale for its valuation is a completely false truth and ridiculous sense of security. That may provide temporary support for the stock but Yahoo is dead money and has been one of the worst run technology companies on earth. Those expecting Yahoo to rise from the ashes is senseless. Yahoo can't beat their way out of a paper bag. Yahoo has to prove an ability to transition to a business management team capable of actually running a generally legacy business. Clearly incompetent executives, if you determine competence by market execution and operational talent, have cashed out billions of dollars in shareholder value while running the company into the dirt. Could new Yahoo leadership get the company back on track to viability? Sure. But, don't look for Yahoo to be the Google killer.
Google's dominance will not be challenged by last decade's innovator; Yahoo. Copycats seldom win in the technology business. Just as Google attempting to copycat Microsoft with free desktop applications is completely ridiculous. It doesn't matter if Google now hosts the applications or if one thinks free is more appealing. Microsoft has had that technology for years as they also have had free desktop productivity applications that ship with every PC. It's a distraction from execution in Google's core business and adds little, if any value. Sun has been trying to crack this Microsoft space with Star Office for ages. Is it ironic that Google's CEO is a legacy Sun executive who obviously still harbors the vision of slaying the Microsoft beast? How much money will companies waste by trying to compete with a monopoly as a "me too"? (Sun has smartly given up and buried the hatchet as much as competitors can.)
A proper perspective on a go forward basis is to look at what scientists, engineers or entrepreneurs will develop as a disruptive replacement to Google's business model. And when. A model that has serious risk. Risk that others recognize and will attack. In addition, from a peak earnings perspective, would someone care to tell me what industry spends the most in online advertising? And which industry will be under severe profit pressure for some time? And, how will that affect Google? How will an economic slow down affect Google? Forget about the ridiculous comments made by one of the Google founders that they made the company to be recession proof. That is hilarious. The first company ever created to be so. $5 billion alters one's perspective of reality just a tad. Those are post facto statements of hubris. I have great respect for the founder's capabilities but I know the real story and that's a little like me almost getting a shot to play in the NBA. (I did. I promise.) And as I asked before, how might you tell me Google is going to participate in the next wave of connectivity in the form of portable or mobile access to the net? Are consumers going to put up with ads on their cell phone, handheld device, car or voice recognition system? How does Google make money in Japan as a purveyor of future financial results in mobile access? Not very well might I say. The chance that a few thousand technical minds within the walls of Google will develop the next big thing when there are six billion minds outside of Google is really quite preposterous. Google may remain relevant by purchasing technology or businesses and may actually flourish, but at that point, they would likely remain in a leadership position because of girth. The same reason GM and Ford remained relevant for so long.
Google's management is exhibiting severe hubris with many of their recent business decisions as well as their willingness to diworsify their business model into unproven businesses, areas dominated by other businesses, areas dominated by Google customers, areas where they have no core competency and areas with unproven returns. Sounds alot like GM buying EDS and Hughes in an effort to diversify. New business models are seldom created by existing companies attempting to diversify as diversification is almost always an exhibition of hubris and failure.
Now for valuation. An ability to manufacture money and leverage to drive a stock or stocks higher is not a sign that "the market knows something you don't know". That is complete and utter nonsense perpetrated by people with competencies in basket weaving. That is what they want you to think. Remember the Galbraith quote in the last post. The greatest investor of all time, Ben Graham, would probably commit seppuku before buying Google at its current valuation. Financial journalists and commentariat have a clear track record of buffoonery when it comes to pumping stocks. Google is trading at astronomical levels compared the the average company valuation given to equities in the great bubble of 1929. Bargain it is not.
Google is a great company today. That statement might last for a long time. But, this isn't about being a great company. It is about bubbles and irrational expectations. Bubbles can last for months or years. If you can shut off your brain and ride the wave adeptly, that is great. But, in no way does it mean Google is cheap or something that people should buy as an investment with hard earned money.
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