Google stock up

[Undertoad]

I saw this happening with Yahoo a while back, and this week it happened with Google. The stock rose from 185 to 225 this week on the basis of the strength of its online advertising, which increased the company's revenue slightly upwards. Like 5 times what it had been previous quarter last year.

People couldn't believe that Google was worth what it was worth at its IPO, which was about 100.

This is the most fascinating business story of our generation: whether Google can grow *past* its development of a great algorithm for internet searching, into a continuing enterprise that repeats its search engine success in other ways.

They are hiring the best and brightest critical thinkers/problem solvers - people who relentlessly pursue problems.

[smoothmoniker]

Here's the thing ... if Google continues to be led and motivated by brilliant engineering, it'll be strong for a very, very long time. I think their biggest strength comes from the fact that their innovation is not driven by a need for market value. If something is a good idea, innovative, challenging, they give their engineers the head room to run with it, even if there's no obvious market value for it.

This increases the chance that they will develop truly useful and innovative products, and continue to exand their increasingly strong brand integrity.

-sm

[Happy Monkey]

Their slogan is "Don't be evil.", which is just about the opposite of how the current MBA corporate leaders are trained these days.

[breakingnews]

Larry Schmidt, Google's CEO, has said what Wall Street investors fear most: The company will be unconcerned with day-to-day numbers - withholding financial projections, paying little attention to per-share earnings - and instead will focus on long-term growth and, most of all, Google's master plan.

This might work for now - the entire world is still enamoured with the concept of Google and how fucking amazing the company is - but in the long run, and particularly after the first series of underperforming numbers, there will be lots of pressure to change this attitude toward shareholders.

That's fine for the stocks of the world's biggest companes, which do not trade as heavily as, say, technology stocks. Investors are vested for the long-run and know that firms like GE, Wal-Mart, etc., will continue churning out money by the billions. You might say the stock has some sort of physical value, as opposed to just brand value.

Which is what Google is riding on. Its intellectual property is priceless, but how much faith can we really put in technology - especially after the dot-com bust? WE know the value of computing and the Internet, but are we ready to consider a math equation the foundation of a blue-chip stock? Might analysts and investors get greedy and turn a shoulder to Google in five, 10 years, perhaps when the company is hitting stagnant territory, and demand that the company start watching its bottom line?

[glatt]

I like Google. I "value" the company. But I sure don't understand how the market determines the price. Yeah, I know. The market is what someone is willing to pay. But look at the numbers.

Google reports that for each share, there was a $1.29 profit for the last quarter. Good news. Better than expected. Wall Street expected a $.78 profit. That's $.51 more per share than was expected. The stock should go up a bit as a result. I would expect the stock to go up $.51 per share plus there would be a little bounce because people might think that since Google was surprisingly profitable this quarter it will always be that way. But the stock has gone up about $30-40 in the week since the news was announced. How do you get $30-40 out of $.51?? Google would have to keep up that profit for 80 quarters, or 20 years to justify that increase in share price. Google is good. But it's not that good.

Obviously, everyone on Wall Street disagrees with me, because the price is what it is.

I don't get it.

[lookout123]

no, not everyone on wall street thinks google is worth it. a lot of people who think good investing means looking in the rear view mirror think it is worth it. these are the same people that were threatening to pull their accounts from me when i wouldn't sell them TASR in the $50's and SIRI above $8.

speculation makes some people very very wealthy on the backs of those who won't listen to the voice of reason. especially in companies with short trading histories and/or limited circulation.

example:

Mr Customer: i think (real tech company) will go to $120.
Advisor: why?
Customer: because it went from $9 to $75 in only 3 years, with that head of steam how can i lose
Advisor: because... stream of logic, facts, figures, etc...
Customer: I'm buying from someone else at $75


5 years later:
Customer: why didn't you tell me (real tech company) was a bad idea? it fell from $75 down to $1.95, insert rant about brokers screwing people over.
Advisor: WTF?!?!?! get out. take your account with you.


2 weeks later:
Same customer: hey (search engine company) went from $85-105 in the opening hours. it has been solid for 6 months and now it is above $200. i want in.
Advisor: why?
customer: i hear it could top $300.

THWACK!
*sound of bat hitting side of customer's skull*

[xoxoxoBruce]

Originally Posted by glatt

I like Google. I "value" the company. But I sure don't understand how the market determines the price. Yeah, I know. The market is what someone is willing to pay. But look at the numbers.

Google reports that for each share, there was a $1.29 profit for the last quarter. Good news. Better than expected. Wall Street expected a $.78 profit. That's $.51 more per share than was expected. The stock should go up a bit as a result. I would expect the stock to go up $.51 per share plus there would be a little bounce because people might think that since Google was surprisingly profitable this quarter it will always be that way. But the stock has gone up about $30-40 in the week since the news was announced. How do you get $30-40 out of $.51?? Google would have to keep up that profit for 80 quarters, or 20 years to justify that increase in share price. Google is good. But it's not that good.

Obviously, everyone on Wall Street disagrees with me, because the price is what it is.

I don't get it.

I remember reading in Barrons, a long time ago, there is(or was) an accepted formula for determining the stocks value. From that you could buy undervalued and avoid overvalued stocks. Except when your cousins, mistresses, bookies, shoe shine boy had an inside tip, of course.

[smoothmoniker]

Originally Posted by xoxoxoBruce

I remember reading in Barrons, a long time ago, there is(or was) an accepted formula for determining the stocks value.

This sort of thing worked much better a generation ago when most investing was done by institutional managers who controlled large accounts and made decisions based on P/E ratios, and other new-fangled fancy math stuff. Today, the shift has moved toward alot of people with 10k in an e*trade account making their own trading decisions, and they're not being at all reasonable or sophisticated about it. In that type of scenario, public sentiment about your company is a real factor.

There's a phenominal book called "Mean Markets and Lizard Brains: How to Profit from the New Science of Irrationality" by Terry Burnham. It analyzes how animal instinct (pattern recognition, fear of failure, fight or flight response) influences mass market decisions.

-ml

[Beestie]

Originally Posted by xoxoxoBruce

I remember reading in Barrons, a long time ago, there is(or was) an accepted formula for determining the stocks value.

Those principles are as valid today as they were then. The economics of what a company is worth are as fundamental as geometry. The old equations allow one to "plug in" things like asset value and growth potential but before the computer revolution, those two variables could usually be quantified with reasonable precision. Today, however, the variability in how those two things are measured is exponentially greater.

We can both look at all the assets on General Motors balance sheet and decide what we think they are worth and our answers would probably be pretty close. Try it with Google's assets and the answers would probably be very different as will our answers on the future revenue Google can squeeze out of those assets.

[lookout123]

what you are talking about is generally termed "fundamental investing".

fundamental investing - look at the company, you are considering for purchase. look at the books, the products, the management, the competition, catalyst for improvement, etc. make investment decisions based on assessed value of company and expectation of future earnings. usually associated with a measured "buy and hold" investment philosophy. believe in long term capital appreciation combined with a strong dividend focus will outperform other methodologies in the long run.

technical investing - look at a stock. consider the stock's action in relation to the market, to it's peers, to the economic cycle. look for patterns and catalysts to make the stock price move. make investment decisions based on charts, graphs, and trends. usually associated with active traders who believe they can capture capital gains and avoid losses by properly interpreting the charts.

[tw]

Originally Posted by Beestie

We can both look at all the assets on General Motors balance sheet and decide what we think they are worth and our answers would probably be pretty close.

Many previous analysts have concluded that GM was worth more broken up into parts. However GM was structured to make a breakup too impractical - too difficult. Its rather weird to think breaking up a company makes it more profitable. However Carl Icahn tried it and backed off quickly after learning these details. The numbers suggested it would be profitable. Once he got into the details, those numbers no longer made sense.

[busterb]

Originally Posted by Undertoad

They are hiring the best and brightest critical thinkers/problem solvers - people who relentlessly pursue problems.

Hell UT I thought all those folks worked for BUSH

[xoxoxoBruce]

Originally Posted by busterb

Hell UT I thought all those folks worked for BUSH

Those are the evil twins.

[jaguar]

Yes but...microsoft hires an amazing number of kickass top-of-the-league engineers too.
Google produces cool stuff, no denying that but to me it seems to be coasting on on brandname at the moment rather than any key innovation. Lots of pretty little things and some impressive jscript but nothing that's made me go wow and the quality of searches under it all is not improving as far as I can see. Google have the right idea, they seem to be a few years ahead of most people in terms of where the money is going to be, a company driven by a vision of the future I've only heard from R&D boys but whether they'll pull it off is far from certain. Their method of making money isn't exactly buletproof either, click-fraud is a shit of a problem and their solutions don't strike me as particularly innovative so far. The company is dealing with some of the most complex technical issues one could, whether it'll be able to come up with real solutions I don't know.

Google do have one unique advantage in my eyes, they are probably the only company large enough to implement certain types of machine learning and have sample sizes big enough for it to actually work, I know they are doing work to do with this, I'll be curious to see what comes of it.

Of course I never bought into the whole wank of platforms being better than products so *shrugs*

[smoothmoniker]

Here's why I have a huge boycrush on Google -

A crucial watershed for human / machine interface is going to be the development of contextual meaning. Right now, if you say the word "fish", machines are very good at giving you 12 definitions for the word, 6 million examples of where it was used, the etymology, the brute translation into 35 other languages, etc.

What machines are very bad at doing is understanding the difference between "I was fishing for a compliment" and "I was fishing for trout." This is contextual meaning, and one promising route for developing this kind of interaction has to do with vast language data mining, collocating contextual markers (when 'fish' shows up in verb form near 'compliment', it has significance for the meaning) and response analysis (what response did this contextual meaning elicit, and how does that impact our understanding). Google's underlying technology looks to be very promising at doing this.

This is the brass ring of seamless human / machine agent interaction - getting an interface that has robust contextual recognition, that can learn your own contextual patterns, that can interact with other machine agents to develop meta-data to project potential meanings. Imagine a machine agent that can work through this internal process:

"My owner recently completed a master's degree in theology at this school, with these other people in his class. He seems to be using the word 'emerging' more frequently in his writing and conversations. There's a good chance that these other people who share his educational context and his social context are using this term in the same way. I should go mine the linguistic data from this very narrow, very specific group of people to see if I can develop a contextual meaning for 'emerging' when he uses it in certain ways."

I walk into the room and say "Beezle (my computer's name), is it too late to get a flight to that emerging church conference in San Diego"

Even if I've never used the word "emerging" with Beezle before, he has a very rich, very accurate sense of the meaning, and can draw an inference to the exact conference that I'm referring to based on that meaning.

Google's in a great position to be able to bring this together.