BUSINESS BLOGS
BUSINESS BLOGS
category: business
26 Feb 2008

Google is now sitting at well below $500.  Is this important? Yes.

Infospace was once worth $20B when its founder Naveen Jain said he was running the world’s first trillion dollar company. Today, INSP is worth $340M. I used to own the stock, got rid of it after Google went public and all would-be search stock holders sold Infospace, Ask Jeeves and Yahoo! for Google.

This tremendous demand for Google’s stock, combined with Google’s revenues growth made the stock rise tremendously from its 2004 IPO.

The stock’s ascent has been nothing but breathtaking:

This helped Google hire more and more talent, with less salary and more options. Problem is the company’s headcount has ballooned when its stock was sky-high, as a result, a lot of options that were doled out might be under-water or tethering on the brink of it.

In fact, if you were hired after 2006, there is a chance that your options in the company are below water. If those shares are vested, then you are owning options at a loss. If you sold the shares, good for you, but will you remain or look for the next hot startup with 1,000%-style returns ahead of it?

It’s important to note that Google’s long term prospects remain robust, but while many focus on the impact of the US recession, it’s important to note that Google’s international revenues stand at 48% and could very easily rose above 50% in 2008… In fact, with a weak USD, adjusting previous years’ performance, Google has gotten most of its revenues abroad.

The main specter overshadowing Google stock is not the US recession, but the fact that display and video advertising are growing faster than search ads and Google has yet to really demonstrate any ability to generate meaningful revenues from that market, let alone own it.

Over the next few weeks and months, maybe quarters even, Google’s stock will have a psychological test to overcome: investors will be intrigued to buy the stock, but they will wonder if the stock is in a deflationary period where it will be cheaper tomorrow than it is today. Even with some $15B cash on hand and an enterprise value of some $125B… Google is 3-5x more expensive than Yahoo! - the best positioned company to win in the next display/video-based growth period.