And the Winner of the Google Sweepstakes Is...

Reader LC, with a prediction of $1.86 in revenue and an opening at $460.  Also an honorable mention to Victor, with a revenue prediction of the same $1.86 and an opening of $450.  Once we get through this panicked short-covering, Victor's number probably will look even better.

Comments

[Anders Kargaard Jensen]

Congrats guys ;)

[Victor]

Thanks HEnry, that LC guy stole my prediction. If this were the price is right, that wouldn't be allowed, but oh well. I also came first last time, but I don't think you announced the winner of the sweepstakes then (actually, I came in second - to YOU! :)
Anyway, now that I have the podium for a brief moment, i think q4 is going to be a blowout (and probably q1 too). These are traditionally the strong qs for Google and I expect that they're going to produce some phenomenal numbers.

There is no secular slowdown (yet) and reading Yahoo runes is not helpful in my opinion. I think interenet advertising still has another 2-3 years of very robust growth in it. Probably more, but predicting further than that is a risky business.

[Victor]

http://www.marketwatch.com/tvradio/playerFull.asp?media=1&band=0&remPref=1&guid=%7BBAD395D3-4E7B-4E4D-8D73-8C84CFEC6CF1%7D&siteid=yhoo

Scott Kessler (S&P) says "higher margins are why you should be interested in the stock". He says this comes from a favorable revenue mix. This is true. More revenue is coming from international properties which reduces their tax rate.

[Victor]

http://biz.yahoo.com/rb/061020/google.html?.v=3

Much praise to Safa Rashchty, the man who's set the bar for other analysts to now follow

[sufiy]

Ok, GOOG at 460, it is time for reflection...today I have closed very nice Trade on SNDK: it was down 21% and my PUTs were flying: very perfect education case. I enter small position in the beginning of the year too early and too out of the money (after today drop even there I can break even), but let myself test the water, on recent spike I have established proper position and today thesis was developed by the market, valuation PERCEPTION was changed and stock was beaten HARD so I ended with nice profit. Why SNDK fall? They beat the Street 0.51 vs 0.49 and on revenue 2% above Street est. but they guided lower! And everybody sell them, GOOG keep silence about the outlook and the same guys who punish SNDK with $46 PT are putting on GOOG PT of $595. Look at their fundamentals in the same report: SNDK forward P/E 2006 is 30.1 est. and 2007 is 28.7 GOOG frwd P/E 2006 is 41.8 and 2007 is 30.4. One stock is down 21% and another is up 7.5%...

http://sufiy.blogspot.com/

[sufiy]

...At the moment bad story about SNDK is known, with GOOGLE with WORSE fundamentals perception is that everything is growing fast and upside is unlimited. What is very important with SNDK: there is no pricing power, competition in COMMODITY business (search is UNIQUE and RESTRICTED to Google?), lower sales (I bet due to Consumer hurt by Housing Bubble bursting and cut back of all users of SNDK on Inventory levels due to Not Rosy outlook) will they cut on chips but spend on ADs even more – hardly and we can see it already in Google financials). Before Hard Data just take a look on Rev growth q on q this q3 it was 9.3% not 10% in conference call (are they pushing figures only here?) but in q2 on q1 Rev Growth was … the same 9.3% miracle, or can I smell some cooking oil? Then we can find out that international Rev contributed 44%, where from do you think click fraud originated: China, Malaysia, Russia and other “pure international destinations”. Why do they use Non GAAP figures together with GAAP ones just for confusion, they love Buffet but he never do it. Why is there is always mysterious:
“Stock-Based Compensation – In the third quarter, the total charge related to stock-based compensation was $100 million as compared to $109 million in the second quarter.
For the full year, we expect stock-based compensation charges for grants to employees prior to October 1, 2006 to be $377 million. This does not include expenses to be recognized over the remainder of the year related to employee stock awards that are granted after October 1, 2006 or non-employee stock awards that have been or may be granted. We currently anticipate that dilution related to all equity grants to employees will be approximately 1% to 1.5% per year.”
Why do not expense all related to the q costs of Labour in all categories of compensation? The only reason that you can play with it but at the year end you will have to charge it. But more to come in hard data posting.

http://sufiy.blogspot.com/

[blah]

Sufiy you're just like that Niel guy who used to post to this blog. Go away, no one wants to hear your crappy stock opinions.

[sufiy]

Lets keep all media hype away and quick short covering amusement following it and check out Google's development in recent Q in order to try to understand its valuation compare to its piers. Upside now is known and everybody is on Buy side with price target 600 (+30%). Shorts are killed and short ratio is less than one day trade, no easy money for upside after yestoday short covering left, somebody has to start to buy into this story at this 460 level. First Google came with Rev 2.69 billion which is less then 2.76 which I have projected from PWC predictions of 16-18 billion online ads market in 2006 with Google Share of 40.5% of this market in Q3 (seasonal trend applied) So, first Google did not manage to increase its market share in Q3. Second, lets look at earnings GAAP ($) Q1 1.95, Q2 2.33 (+19%), Q3 2.36 (+1.3%!?) Earnings growth dramatically slowed. Third, revenues: Q1 2.25, Q2 2.46 (+9.3%), Q3 2.69 (+9.3%!?) math's precision or can I smell some cooking oil here? 44% of revenue is coming from international business. All hitfarms are located in pure "international "destinations India, China, Malaysia, Russia etc. Revenue growth is slowing with increased risk of cutting back on advertisement due to economy slowdown and click fraud awareness buy the customers. Fourth, Net cash from operations Q1 0.825 (37% of Rev), Q2 0.841 (+2% 34% of Rev), Q3 1.0 (+19% 37% of Rev) Capex Q2 0.699 (0.319 Real eastate 0.380 "normalised"), Q3 0.492 (+29%!) So Google Capex increase is really much bigger then their Rev growth 29% vs 9.3% with constant Net cash from operations at 37% Rev, Free Cash Flow is under compression. Total Free Cash Flow for nine months is 1.112. If we will project Rev growth for Google at 12% for Q4 vs 9.3% for Q3 they will make Rev Q4 3.0 (less then based on PWC and 41% of market 3.2) Net cash from operations at 37% of Rev 3.0 will be 1.1, if we apply 20% growth for NCFO in Q4 (vs +19% Q3) we will get 1.2 so lets assume NCFO will be in the middle = 1.15. What about Capex? I think it will be increasing dramatically with moving into video: broadband, storage, new blades, electricity. But if we even aply same growth to capex as to Rev +12% (they said it will be bigger then Rev growth, Q3 was +29%) Capex Q4 will be 0.551. So, Free Cash Flow in Q4 will be NCFO-CAPEX=0.6 and total FCF 2006 will be 1.712 If stock will not move from 460 we have MC=142 billion MC/FCF=83! YHOO is projecting FCF 1.35 in 2006 (lowered recently) with MC at 32 their ratio is MC/FCF=24 If the Google will manage to make even 2.8 EPS in Q4 (+19%) (do not forget annual charge for all those "to be expenced option related expences which they did not account in past Qs) GAAP 2006 will be 9.44. So with GOOG at 460 we have company with 2006 est MC/FCF=83, P/E=48.7, P/S=14.2 with slowing growth in EPS and Revenue and most important with dramatic compression in FCF. YouTube will bring dilution, much more CAPEX in Video Game and No revenue so far. What is the more reasonable valuation of Google: if we give GOOG MC/FCF=40 (69% over YHOO for leadership and "strength") MC with 1.712 FCF must be 68.5 billion with 310 million shares outstanding before YouTube diluton it is...221 share price. When MR Market will figure it out I do not know, but I am testing the water with March 2007 460 puts.
Regards,
http://sufiy.blogspot.com/

[sufiy]

Dear Henry,

I do realise that I am getting noisy here, but few more thoughts to support your idea that Google started feeling the heat, I do not mind you to write nice article based on it after your check, just mention me if you like. If I am too noisy and you have different idea of conversation, let me know please and...really consider your index fund, we need you here...Regards, Sufiy.
Few more observations on recent trends in Revenue and Net Margin of google presented in CC slides
http://investor.google.com/pdf/2006Q3_ConfCall.pdf
First of all I dare to say that they have monetised everything from the existing traffic with diminishing growth and they are desperate to buy new traffic in order to monetise it. The biggest problem here that YouTube traffic is not monetisable straight forward if meaningfully monetisable at all. But few figures: Growth in Google.com is in the slowing trend Q3/05 +20%; Q4/05 +24%; Q1/06 +18%; Q2/06 +10.4%; Q3/06 +13.5%. Share of Network Revenue is declining Q2/05 85%; Q3/05 76.3%; Q4/05 72.8%; Q1/06 71.5%; Q2/06 69.6%; Q3/06 63.8% and growth in Network revenue is slowing even more aggressively: Q3/05 +7%; Q4/05 +18%; Q1/06 +16%; Q2/06 +7.4%; Q3/06 +4% (!) What has happen? Partners has figured out how to monetise traffic without Google? Nobody is growing apart from Google (which is slowing down itself)? Click fraud with better audit available to advertisers is taking its cut from "partners" clicks? We can only speculate here, but trend is established and it must be very disturbing to Google management. Cost of this Network traffic is increasing, if you will proper apply TAC to share of Network Revenue you can see following picture: TAC/NetwRev Q2/05 78.4%; Q3/05 60%; Q4/05 78.7%; Q1/06 77.9%; Q2/06 78.7%; Q3/06 79.6%. So total picture is that growth of Revenue on Google.com is slowing to 12-15%; Growth of Network Revenue is slowing dramatically to single digit figures and its cost TAC pushing 80%. Net Network Revenue was Q1/06 205 mil 15.8% of Rev Google.com; Q2/06 212 mil 14.8%; Q3/06 212 mil (!) 13%. Somebody is playing math here? Do you remember how insurance companies like AIG smoothed their earning with "Partner Deals"? Traffic exchange even more easy to regulate or maybe some of the "Partners" in the "Network" in the Family. But no offence Boys - you are hardly pushing any Law here and clear in your intentions: Selling your shares smooth and fast. All written above went straight into the money: Net margin contracted in Q3 vs Q2 from 29.4% to 27.3%. Should I send it to Google? Or they already has this slides for internal use?

http://sufiy.blogspot.com/

[sufiy]

Washington post "FBI, SEC and US Postal Inspection Service are investigating click fraud"
This is the real story behind all that industry denial:
"Big advertisers are pushing search engines behind the scenes to fight click fraud more aggressively, but many are afraid to criticize them publicly because they wield such clout. "Sixty percent of new customers come through Google. [Advertisers] can't afford to upset that channel, regardless of whether there's fraud," said Jason Clement, an associate director at Carat Fusion, a New York ad agency."
http://sufiy.blogspot.com/

[john]

The higher it goes, the more nonsense you post. What an idiot.

[sufiy]

When will the game "music chairs" begin? Who will be without the place? In order to Sell you need to have a buyer. If you are buying Google at 480.78, you are buying the company with following valuation from Hard Data on Google Bear Case:
FCF 2006 est 1.712 billion
GAAP EPS 9.44 USD
Revenue 10.4 billion
Market cap at 480.78 stands for 149,3 billion. After YouTube deal if stock will not move from 480.78 dilution will be +3.4 million shares wich will bring Market Cap to 151 billion.
So at 480.78 Google is "on sale" according to majority of analysts with:
2006 est MC/FCF=88.2, P/E=50.9, P/S=14.5 with growth in Revenue in single digits Q/Q and EPS growth +1.3% Q3/Q2 in slowing economy with online advertisement slowing growth reality.
http://sufiy.blogspot.com/

[Googleisafivebaggerin5years]

Sufiy,
No offence but you seem to be getting a wee bit hysterical. Relax.
You're obviously certain of the impending train crash. Why not spend the time raising as much cash as possible and short the hell out of the stock to make millions ?
15 posts a day all repeating the same thing over and over on the blog of a confirmed google bear isn't going to do much for your sanity is it ?

[LC]

Dear Anders Kargaard Jensen
I think you are an idiot who just envy me. ^^, never mind, I am the winner!!
LC

[Victor]

How Microhoo Could Beat Google
http://blogs.mediapost.com/search_insider/?p=396

I wonder how much this Justin Post fellow gets paid? This is the stupidest idea I've heard for a merger in the internet sector. Ranks up there with ebay and yahoo merging (as suggested by Fortune), or Yahoo buying AOL.

Sometimes i wonder if these analysts put more than the most superficial thought into these ideas

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