Speechless

In the interests of decorum, professionalism, etc., analysts will no doubt offer careful assessments of Google's Q3 results.  And the wires will bustle with stories about how ridiculous it is that a stock that went public at $85 fourteen months ago is now trading at $350ish, etc.

The real story?  These results are absolutely staggering. 

Google's stock price--shocking though it is--is much less amazing than Google's fundamental performance, which is simply not to be believed.  A 7 year old company with a revenue run-rate of $6 billion, an annual growth rate near-100%, 43% EBITDA margins, 100%-plus return-on-invested-capital, a dominant global franchise, and already about half the cash flow of Time Warner (a 100 year-old company with 85,000 employees).  As folks at net-relic Compuserve might put it: Wow.

What happens from here?  God only knows.  But those who are only gasping at the stock price are missing the more astonishing part of the story. 

Disclosure: I don't own Google stock. I did own it, for a few minutes, after "winning" some shares on the IPO, but then I immediately flipped it on the theory that my Yahoo! and Amazon positions gave me enough Internet exposure and that I shouldn't be speculating.  Since then, I've felt like shooting myself.

Comments

[Anders Kargaard Jensen]

Henry.. my man.. its not too late to get in the game I believe! I wrote an email to Google in January 1999, when they were 5 months old asking if I could purchase shares in them. Obviously the answer was no - later I found out who this Sergey Brin guy who answered my email was ;)

Still having Yahoo! shares, I also was reluctant to believe, that Google could outdo Yahoo! - so I didn't get in untill April this year. But man that was about time. However, I have not regreted, since the share then was $193 and now trading at about $340.

My point is:
If you believe the stock has a future - then don't stay out of it - just because you didn't buy as early as you liked. If you don't buy now - you will just feel like "shooting" yourself even more next year..

I blog about Google vs Yahoo! vs Microsoft at:
http://investinsearch.blogspot.com/

[Anon...]

RE: "But those who are only gasping at the stock price are missing the more astonishing part of the story."

I'll bite. What was(is) the "more astonishing part of the story"?

[Pat]

Besides the numbers (which are hard to comprehend), the thing that really impresses me about GOOG is their focus on process 'systemizing.' I think this is the key to their long-term success. With the right processes and systems in place, they can keep up with their heady growth. I would share my LT price target for the stock, but no one would believe it!

[Chris Austin]

What do you think about NTES?

[Henry Blodget]

Re the MOST astonishing aspect of the Google story...

In my mind, it's the cash flow and the relatively small amount of invested capital required to generate it. For a company that is only seven years old with only 5,000 employees to be generating about half the cash flow of a century-old company with 85,000 employees like Time Warner is shocking, especially given that the two companies are essentially in the same business (I know Google says they are a technology company, but, in my mind, the kind of company you are is defined by where your revenue comes from, and they are selling advertising, not technology).

Compared to Google's cash flow (approx $2 billion run-rate, half of Time Warner's), as well as the growth rate (50%-plus), the stock price seems less remarkable. Which doesn't mean it's not risky. Google has a zillion products but only one significant revenue stream--a situation very similar to, say, Yahoo! in 1999. If anything happens to the search growth trajectory, in other words, the stock will get creamed.

[Anon]

Henry,

Thanks for taking the time to explain what you believe makes the "Google story" astonishing.

Cheers.

[Network]

Great work, i like it. Thanks for sharing.
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