Thursday, January 12, 2006

Once leading internet analyst becomes Google bear

Henry Blodget, the once famous Wall Street internet analyst, has got the media and tech world all ruffled because he has dared make some bearish comments about Google - oooh!

He argues that Google at a valuation approaching $150bn is way too high and runs the serious danger of a share price meltdown. His arguments centre on the fact that Google is still just a one trick pony selling online ads and the online ad market may not have all the gowth legs in it everyone seems to be predicting. Wow, and Henry Blodget used to be such an internet bull!

He specifically argues that most of his concerns centre on a possible decline in advertising revenue due to click fraud, competition or just a general slowdown. Competition I buy into, but click fraud or a general slowdown I'm a little more challenged on without some real specific evidence.

But the real issue is at what point Google stock starts heading down. After all what goes up must go down and every single stock on the planet follows upward cycles and downward cycles. First we must ask ourselves whether Google at $450 odd is over valued today. And the answer is of course. Can it really justify a loftier valuation than IBM? I'm not sure.

But the real question is can Google grow into their current valuation quickly enough that their share price can postpone a fall for quite a while or even climb higher. Well, the real answer is no-one knows. Whatever any pundits say. But we will know a lot more by end 2006. We'll know more about the growth rate of online ads, we'll know a great deal more about Google competitor progress and we'll know more about whether Google can start to generate some real revenues from their numerous other initiatives.

And lets not forget that many of Google's other initiatives may monetize through ads, but this doesn't necessarily mean Google is dependent on AdWords alone. Not at all. So role on 2006. Time will decide a great, great deal.

1 comment:

David Rodnitzky said...

I think your point that other Google properties may some day produce revenue is the big 'what if.' If Google Base, Earth, Picassa, etc actually do become real revenue streams, the $2000 a share valuations may be correct. If they do not, $465 is way over-value. I recently wrote a blog post on this topic, available here: http://blogation.blogspot.com/2006/01/why-google-is-bear-and-why-its-bull.html