Most Ridiculous Item of the Day

Mark Klee, a technology fund manager, on why he doesn’t own shares of Google:

“We don’t own Google. The valuation is just too high for us. We do own Yahoo, though, Google’s main competitor.”

So Google stock is too expensive, but he owns Yahoo. As a mutual fund manager, you would think Klee would understand how silly this view sounds to anyone who follows these two companies. Google trades at 50x 2005 earnings and 39x 2006 profit expectations. Yahoo’s ’05 and ’06 multiples are 65x and 51x, respectively.

I’d love to know why Yahoo is cheap enough for him to own, but Google’s valuation is too high, especially when Google is growing faster. As far as GOOG’s $14 jump today, to an all-time high of $255 a share, I still think the stock has more room to run. I would not be surprised to see $300 by year-end, at which point I will most likely take some money off the table.

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5 Thoughts on “Most Ridiculous Item of the Day

  1. ptkelly on May 23, 2005 at 8:37 PM said:

    I haven’t looked at the specifics in a little while, but YHOO owns a large slug of YHOO JP that is carried on its books at cost and that trades in JP at a stratospheric multiple that would put 1999 valuations to shame resulting in substantial hidden value (I know that is 100% incremental value to YHOO that GOOG does not have), D&A is significant on the income statement, EBITDA to FCF conversion is 70-80%, and then throw cash on the balance sheet in. I haven’t look at GOOG’s relative metrics on the last few items but add in the fact that until recently, GOOG was really only a play on the online equivalent of the yellow pages, a $14B market (save for GOOG’s introduction of its ripoff of MyYahoo) whereas YHOO stood to not only capture a share of that market but also the transitioning of branded advertising from TV to internet (a $57B market).

  2. Chad Brand on May 23, 2005 at 9:39 PM said:

    If investors want to make the case that YHOO should trade at a premium to GOOG, that’s fine. However, even if you include YHOO’s stake in Yahoo Japan, it still does trade at a premium.

    It is true that Google is far less diversified than Yahoo as far as businesses go, but the bullish argument for Google’s future rests on the fact that they have left most markets untapped as of yet.

    Investors that have sent Google shares up more than 50% in the last 6 months, when Yahoo has been flat during that time, are clearly betting on much bigger things from the company.

    The point of my post was that the YHOO versus GOOG comparison is a fair one, but as far as valuation alone is concerned, I think it’s tough to argue that Yahoo is cheaper.

  3. ptkelly on May 24, 2005 at 10:10 AM said:

    I didn’t like google until the mygoogle announcement – felt like they had pigeon holed themselves into search only advertising and that hubris was going to get the best of them…prevent them from reaching many of the markets that people were projecting for them coupled with the fact that they have not really come up with any new ways of monetizing traffic. mygoogle though i think changes the game. am long both GOOG and YHOO now. BUT i’d still like to see some sort of creativity from GOOG on new ways of making money and not just on new products…

  4. Jack Miller on May 31, 2005 at 3:01 PM said:

    Why not own both? My family owns Google, Yahoo and EBAY. We appreciate that Yahoo is more diversified but we love the Google business model. Google is shooting a rifle verus the Yahoo shot gun but Google is taking dead aim on trillions of targets. So far, Goog is in a class of its own.

    Anyway, your point is well made. How can Google be over-valued relative to Yahoo? Many mutual fund managers remind me of a government bureaucrat trying to run a coffee shop.

    Google and Yahoo both sell at very high valuations and they both have great growth prospects. My family has ridden Yahoo from $3.50 and Google from $85. If Google is added to the S&P and goes bananas, we might sell half.

    The biggest mistakes I ever made were in selling too early. The last GOOG I bought was around $190. I can’t see buying more soon. I bought more USG today and AWA last week (my fifth airline) so you can see I am heading in a new direction.

    Thank you for your insights. You operate one of the best blogs in the business.

  5. Chad Brand on May 31, 2005 at 3:12 PM said:

    Owning Google, Yahoo, and eBay is just too much Internet exposure for me. Google is going right after Yahoo’s business, and Microsoft will be next. The stocks will trade together, so you won’t get much added benefit from owning more than one of them, let alone three.

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