Google Is Going For $100B Growth
Thursday, March 02, 2006SUSIE GHARIB: Google today set a lofty goal for itself: to become a $100 billion company. The comments came at an analyst meeting at Google`s headquarters in Mountain View, California. Executives at the Internet search engine company provided no timetable, nor details on how it plans to achieve that target. But the stock still surged as much as 4 percent before finally closing up over $11.50 to $376.45. Now just two days ago, Google shares tumbled 7 percent after the company`s CFO warned of slower growth. Joining us now with more analysis Rick Summer, equity analyst with Morningstar. Hi, Rick.
RICK SUMMER, EQUITY ANALYST, MORNINGSTAR: How you doing, Susie?
GHARIB: I know you were at the meeting all day long by telephone conferencing. I`m just wondering, after listening to all the hours of presentations, should investors feel more upbeat about owning Google stock after what was said today?
SUMMER: Well, taking the information in today, we didn`t really find anything else that would make us more optimistic. In fact, we`re still holding our fair value around $285, which is fairly far south of where it`s trading today.
GHARIB: And why are you saying that?
SUMMER: Well, one of the big things that we saw is we have no question there is going to be growth and the question is how much. This lofty esoteric goal of $100 billion is in our mind pretty meaningless. We have a $600 billion advertising market that`s going to be split amongst television, radio, newspaper, ad agencies, just a multitude of players. So we can`t see that Google is getting more than their fair share.
GHARIB: So what did Google say? Where is growth going to come from so that they can hit such a target of $100 billion sometime in the future?
SUMMER: That`s right. We`re still looking at a pretty ambiguous schedule here. One of the things that we see -- and we have no question, there`s going to be a lot of growth. We`ve modeled revenues and operating income to triple over the next five years. Primarily, though, we`re talking search and we`re talking online advertising. We`re really talking about the same story. It`s a robust growth story, but $100 billion leaves a little question to us.
GHARIB: What did Google say about pricing?
SUMMER: They said the key word pricing, which is one of the important metrics that they look at. Key work pricing has really held up pretty steadily and we don`t see that changing, but things keep on going up until they go down. I know that doesn`t sound like a lot of wisdom there, but when things turn, they will turn on a dime.
GHARIB: You talked a little bit about the competitive landscape and I know that Google executives were also talking about Microsoft, but they just didn`t feel very threatened by Microsoft right now. Should they be?
SUMMER: It`s amazing how many times Microsoft can continue to misstep in this market, and it wouldn`t surprise me to see them continue to misstep. I think there`s other things that Google needs to be a little bit more worried about, but I would agree with them - to stay focused on their core market, not worry too much about competitors, serve their constituencies or advertisers and their users and things will come to fruition for them.
GHARIB: Did you sense that the company executives, including their chief financial officer, were backing away from comments that they made earlier this week that growth was slowing?
SUMMER: Yeah, it`s very interesting you ask that. I mean the SEC filings have always said that growth is going to slow. It wasn`t a negative. I think it`s obvious that growth is going to slow. To me it was a pretty honed, carefully honed marketing message today that every opportunity is limitless, so please, don`t put any limits on our valuation. A little bit contrived for my taste but.
GHARIB: All right, well, Rick, thanks for coming on and sharing with us your thoughts. We appreciate it.
SUMMER: Sure thing Susie, thank you.
GHARIB: We`ve been speaking with Rick Summer, equity analyst with Morningstar.
