) stock price pushed past $1,000 (US) for the first time. The
search giant, which first traded at $85 per share, has now produced
a gain of more than 1,000% for those who bought it during its
August 2004 initial public offering (IPO).
In hindsight, it's easy to say the stock was a bargain at $85. My
contention is that it is still good value at $1,000. I expect more
gains from here.
Sure, there may be some bumps along the way. My own investment in
Google started in 2008, when I paid $457 per share. The stock had
previously hit about $700, so I felt I was getting a deal, despite
paying more than five times the IPO price only four years later.
I couldn't have been more wrong in the short-term. The market
collapsed late in 2008, and my precious shares dropped below $300
I didn't worry. I had invested in Google because I had finally come
to understand the importance of online advertising, and because I
felt that Google's Android operating system posed a significant
). Those twin assumptions kept me focused on the business's
long-term potential as Google's stock price collapsed in 2009.
My faith was rewarded. But with the stock price over $1,000, there
are lots of people who feel that Google must now-finally-be
Not so fast. There is nothing meaningful about a four-digit number
in isolation. A $1,000 price tag means zilch without looking at the
big picture, which includes shares outstanding, business
performance, growth opportunities, and competitive threats.
The event that drove Google shares to new heights was its latest
set of quarterly results. The company's core business revenue (i.e.
excluding its Motorola unit) grew an impressive 21% on a constant
currency basis over the past year. Operating margin actually went
up, which tells us Google is able to grow its earnings faster than
its revenue-a very positive sign for a company that is expanding so
The core of Google's business remains advertising, and the recent
results bear witness to the company's success in that area. Its new
, a big new initiative in the Adwords pay-per-click business is
going well, driving more ads to mobile device users-and that mobile
audience is growing by leaps and bounds. Just look at Google's
YouTube business. A whopping 40% of views now come from mobile
devices versus only 6% two years ago.
And there is plenty of room left to grow. According to research
firm Magna Global, the global market for advertising reached
$495-billion this year. Google controls only about 3% of the total,
and its market share should grow as marketers shift more and more
dollars to the Web.
According to venture capitalist Mary Meeker, Americans spend only
6% of their time consuming print media, but advertisers still spend
23% of total ad dollars on this dying medium. This is
unsustainable. As more ad dollars flow online and to mobile
devices, Google is ideally positioned to benefit.
To be sure, it will never achieve the kind of market share in
advertising that Android has in mobile computing, or that YouTube
has in online video, or that its Chrome browser has in the browser
market. But what if Google moves to 10% of the global ad market in
the next decade? Revenue would more than triple from here.
S&P Capital IQ shows me that analysts expect Google to post EPS
of about $52 next year. So even after the stock has risen to over
$1,000, it's still trading at only about 20 times earnings, which
seems reasonable for a company with its growth prospects.
Google dominates online advertising, mobile computing, online
video, online e-mail and a bunch of other stuff I don't have room
to mention. So, is it overpriced at $1,000 a share? I don't think
so. I won't be selling a single share. Ask me again in 10 years.
Editor's Note: This The Globe and Mail article by
was originally syndicated by
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