

World's Scariest Stock: Google - dpapathanasiou
http://www.fool.com/investing/general/2007/10/29/worlds-scariest-stock-google.aspx

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mrtron
1\. Virtually zero barriers to entry

Incorrect. This is where many analysts have been wrong, and hence have been
underestimating goog's longevity. Google has one of the largest barriers to
entry of any tech company. Personally, I think larger than Microsoft's. Here
is why: they solve ridiculously hard problems and make it seem simple and
easy, and monetize it well! Yahoo, Microsoft, and all the 2nd tier search
companies cannot hold a candle to Google's ability to search and index. Why?
Google has the smartest people in the world working hard and enjoying
themselves while working there.

2\. Competition from the other big dogs

Incorrect. The other big dogs are falling rapidly behind. Microsoft is not
doing well on the web, momentum is basically carrying them. Yahoo is not doing
well, again they are doing a decent job at making money being second horse,
but they do not do anything innovative on search or advertising, they eat up
the scraps. AOL clearly is dying. Google's margins are much higher than any
competitors, and this is massively important.

The other arguments could hold, but I don't agree with them entirely.
Generally, I feel the advertising based model allows them to monetize any
product they create, from web mail to any of their newer products, including
potentially free wifi.

Just my two cents.

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mdemare
What's so ridiculously hard about indexing and searching? Google does it well,
but if I had to use MSN or Yahoo I'd hardly notice.

It's very hard for a startup to beat Google at general search, but by choosing
a subset (cheap prices, reviews of consumer electronics, vacations, flights,
symptoms of illnesses, mailinglists and forums, blogs, movies, music lyrics,
torrents, shareware, etc etc etc) startups will slowly encroach on Google's
territory.

Finally, it may be very difficult to build a better Google, but I find it
extremely easy to _imagine_ one.

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randrews
Aren't tons of little specialized search engines the problem Google was made
to fix?

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mdemare
But Google hasn't fixed it. If you're looking for electronic parts, Octopart
works much better than Google.

But how to find Octopart? How to even know it exists? I envision a search
engine that gets to know you, asks for clarifications, and delegates to a
suitable specialized search engine.

I bet a startup is working on something like this right now.

~~~
stillmotion
But building an indexing system that google already has set the standard for
is a little more than what any "little" startup can do.

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byrneseyeview
Heh. This is the second 'Google is overpriced' article I've seen from the same
user. A few new howlers:

"Google's core competency - search -- has barriers to entry the size of LEGO
walls. If two guys starting from their dorm room were able to topple one-time
reigning search king Yahoo! (Nasdaq: YHOO), what makes you think that Google
itself is any more secure?"

What, indeed? Well, for starters, Larry and Sergei are probably aware that, if
it's 1998 all over again, the next Larry and Sergei are going to eat their
lunch. This is sort of how France was aware in 1939 that, if it was 1914
again, the Germans would go straight for Paris.

"Look no further than the whopping price Google was forced to offer up for
DoubleClick as proof of what can happen when you pit a couple of ludicrously
cash-rich companies against each other."

I would suggest looking a lot further, actually. Most of Google's acquisitions
go unreported (at least that's the impression I get from people in a position
to know). Obviously, the most overpriced deal will get the most attention --
but that's practically a tautology. Google is probably able to buy smaller
startups for less because they pay half the cost in dollars, and half the cost
in I'm-working-for-Google cred.

"That said, binding the company's fortunes so tightly to an approach that has
left heaps of corpses in the corporate graveyard is more than a touch
frightening."

Which corpses does he have in mind? If he's thinking of dot.coms from the late
90's, he's thinking of the early version of a business Google got right, which
seems as relevant as noting that Henry Ford was doomed because look at what
happened to to that horse-drawn carriage company down the street. I don't know
what else he could have in mind -- television, radio, product placement, and
outdoor advertising aren't doing noticeably poorly (and if their returns do
start to drop, the first thing to check is whether or not it's Google's
fault).

"Google forecast: Underperformance, with a slight chance of greatness Again, I
love Google, and I have huge respect for the company's accomplishments. The
company could innovate itself to outstanding returns for many more years to
come. But given the... fat valuation on the shares, I certainly wouldn't bet
on it."

That's it. That's the case against Google. Good, but not 52X earnings on $4
billion in annualized earnings great.

~~~
dpapathanasiou
So you disagree with the specifics, but agree in general terms that GOOG is
overpriced?

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mrtron
GOOG is 'overpriced' because of their aggressive growth. It is quite rare for
someone of their size to be posting double digit quarterly growth rates.

~~~
jsjenkins168
The problem is even when you discount future earnings (accounting for this
growth rate), GOOG is _still_ overpriced. So then you start trying to justify
the value on other lofty factors which are more difficult to quantify. This
practice is totally deja vu from 2000...

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mdemare
I thought Google was overpriced when it was $170 a share, and I shorted it.
Lost me quite a bit of money. I was wrong, it wasn't overpriced then. It is
overpriced _now_ , but I've stopped speculating.

~~~
dpapathanasiou
As traders say (I think Keynes said it first):

" _The market can stay irrational longer than you can stay solvent_ "

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ajkates
I agree with just about everything said here. I don't feel so strongly about
some of those points, but they're all legitimate arguments to a certain
degree. However, there's one thing I'd like to add to the author's argument.

Google lacks one thing that will prevent its true value from growing into its
current market capitalization: trust. We already trust so much of our lives to
Google. They know what we search for and do on the web, what we do with our
time (Calendar), who we speak to and what we say (Gmail), and so much more.

People (and the regulatory authorities) were skeptical (and afraid) of
Google's acquisition of Double-Click because of the "scariness factor." Soon,
Google will hit a point where people will no longer trust it with certain
kinds of information. People's lack of trust, or perhaps anti-trust
legislation, will provide some setbacks for the company in due time.

Of course, this will leave "gaps" for more trustworthy young entrepreneurs to
take the stage in certain areas; areas that people no longer trust Google to
dominate. In reality, Google has nearly unlimited potential, but all-in-one
integration in our lives can only reach a certain point before we become
uncomfortable.

~~~
mdemare
Nobody I know cares about that. Nobody even realizes that Google stores every
single search you do. People should care, but they don't, and they're not
going to either.

~~~
ajkates
Perhaps. You and I don't care, not yet. I use just about every mainstream
Google product/service available. But, we're not most people. Most people are
already weary about what they do with their personal information.

There will be a time in the not too distant future when this barrier will be
crossed. Giving any large, corporate entity too much information is often
perceived as dangerous, because they have a greater ability to
utilize/mine/profit from that information than a new startup. I guess we'll
just have to wait and see...

