Google has been living through many ups and downs in recent months, as has the rest of the stock market obviously. And while I have seen many reports about how in these times, investing by looking at P/E earnings might be a mistake, but without a better reference, that is still what I’m looking for. And since Google released its latest quarterly earnings report last week, it is a good time to look at the possibilities for Google.
-Earnings per share (EPS) came in at 4.92$/share excluding special items. If you put this as a yearly figure (which I would think is conservative since the Thanksgiving/Christmas season would be the highest earning quarter in terms of advertising), you get about 20$ of EPS. I think a P/E between 25 and 30 is justified for Google given its high growth (more on that later) which comes up to a 500-600$ target for Google….
-I think Google can maintain the growth for a while still because of 2 main reasons: extensive advertising in its current products and new products
-Firstly, I think Google has been able to open up a few new channels of advertisements such as the new possibility of ads on google maps (which has great potential in my opinion), unblocking of gambling ads in their search engine for certain products such as Britain (where it is legal)
-They also have quite a few products that have been pretty much ad-free while they are gaining market share such as Google Finance but could gain significant earning power when Google decides the time is right. Google also has the potential to gain in the medium future from new activities such as Android, Google’s mobile phone play.
-Because of its dominance in the search market (62.9% in the US and still growing), Google has more room to increase ads without having a user backlash than many competitors.
-And finally, I see as a major positive the fact that Google has become a lot more diverisified with this quarter being the first one ever with more than half of advertising revenues coming from outside of the US.