First of all, I wish Google all the success in the world in its IPO, I hope it makes tons of money for the company, shareholders and its founders, they deserve it. I love when the free market rewards entrepreneurs. Google is the best damn place on the Internet, period. I have it as my home page and use the Google Toolbar extensively.
That said, I will not buy the IPO shares. Google is valued at 20 to 25 billion dollars. I don’t know how that happened because until yesterday, Google’s revenues were a total mystery to the entire planet except to their CFO and the Venture Capitalists Kleiner Perkins who invested in Google a while back (and also invested in my company four years ago).
I read the public S1 filing document today. Google’s revenue was just under a billion dollars last year. We can do the math, 25x revenues is super overvalued. So let’s look at earnings. Last year Google had $343 million of operating costs (you think a server farm of a gazillion servers is cheap?) so its valuation is at 73x earnings. That is crazy talk.
Sure Google can grow. This year they are projected to grow by more than 50%, but of course operating costs will actually double. They are projected to have revenues of $1.6 billion and operating costs with $620 million that will put earnings at about a billion. That sounds like a huge jump in one year, but hey they do have a kick-ass product. Even so, 25x earnings is still an overvalued stock, no matter how you look at it.
You know what this sounds like to me? The late 90s internet bubble. So let the buyer beware.
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The opinions expressed herein are my own personal opinions and do not represent
my employer's view in anyway.