Saturday, February 4, 2006

podcasting advertising market

As business models related to the ubiquitous internet rely more and more on advertising, I thought that an interesting exercise would be to understand the implied growth rates in Google's stock. Afterall, Google is the gorilla of all advertising driven business models.

Assumptions:
- Current price per share of $369
- Earnings per share of $5.02
- Beta ranging from 1.25 to 3 (since it is such a new offering it's best to do some sensitivity around this value
- P/E ratio in 10 years between 20-80

Calculation:
- If you run through the numbers you come up with the following sensitivity table on implied growth rates of Google's stock assuming different Beta's and P/E ratio in 10 years:
1) Taking Beta constant at 2 and changing the P/E ratio growth rate varies from 25% to 9% (P/E ratio of 20 and 80 respectively).
2) Keeping the P/E ratio constant at 30 (Microsoft's multiple after 10 years), growth rate varies from 18% to 23% (Beta of 1.5 to 3 respectively).

Implications:
I would think that it is very unlikely that in 10 years Google will maintain its current P/E share of over 70, so assuming that it follows the record Microsoft has had (P/E of 30 after 10 years) and volatility somewhat more marked then the market (Beta value of 2) you are looking at implied double digit aggressive compound annual growth rate of 20%. So if you were to buy the stock today, it would have to grow at this rate in order for it to maintain its value, and it would have to exceed this growth rate for you to make any money. Now, earnings have grown 100% for Google in the last year, and with a few more years of such dramatic growth you might average out the less stellar results later in the lifecycle of the company to possibly still give you 20%. Note, however, that Microsoft ended up growing at rate of about 10%.

So the next question is whether Google's can capture revenue by diversifying into other offerings (subscription fees, wireless access, etc) and whether their current model of providing state of the art software supported through advertising revenue streams has more room to grow. To think about the second issue more precisely, you would need to consider the growth of the advertising market across the various segments that Google operates in (search) and growth in advertising from segments they are likely to expand into (mobile services, digital content aggregation, etc). You would also need to consider how this market is likely to be divided among other incumbents (Yahoo, Ebay, Microsoft) and new upstarts. Look for my thoughts on this market analysis in one of my future posts.

Related article:
http://online.wsj.com/article/SB114114129311685373.html?mod=home_whats_news_us

2 comments:

  1. Is Your VIRUS REMOVAL
    Computer Sluggish or Plagued With a Virus? – If So you Need Online Tech Repairs
    As a leader in online computer repair, Online Tech Repairs Inc has the experience to deliver professional system optimization and virus removal.Headquartered in Great Neck, New York our certified technicians have been providing online computer repair and virus removal for customers around the world since 2004.
    Our three step system is easy to use; and provides you a safe, unobtrusive, and cost effective alternative to your computer service needs. By using state-of-the-art technology our computer experts can diagnose, and repair your computer system through the internet, no matter where you are.
    Our technician will guide you through the installation of Online Tech Repair Inc secure software. This software allows your dedicated computer expert to see and operate your computer just as if he was in the room with you. That means you don't have to unplug everything and bring it to our shop, or have a stranger tramping through your home.
    From our remote location the Online Tech Repairs.com expert can handle any computer issue you want addressed, like:
    • - System Optimization
    • - How it works Software Installations or Upgrades
    • - How it works Virus Removal
    • - How it works Home Network Set-ups
    Just to name a few.
    If you are unsure of what the problem may be, that is okay. We can run a complete diagnostic on your system and fix the problems we encounter. When we are done our software is removed; leaving you with a safe, secure and properly functioning system. The whole process usually takes less than an hour. You probably couldn't even get your computer to your local repair shop that fast!
    Call us now for a FREE COMPUTER DIAGONISTIC using DISCOUNT CODE (otr214427@gmail.com) on +1-914-613-3786 or chat with us on www.onlinetechrepairs.com

    ReplyDelete
  2. Problem: HP Printer not connecting to my laptop.
    I had an issue while connecting my 2 year old HP printer to my brother's laptop that I had borrowed for starting my own business. I used a quick google search to fix the problem but that did not help me.
    I then decided to get professional help to solve my problem. After having received many quotations from various companies, i decided to go ahead with Online Tech Repair (www.onlinetechrepairs.com).
    Reasons I chose them over the others:
    1) They were extremely friendly and patient with me during my initial discussions and responded promptly to my request.
    2) Their prices were extremely reasonable.
    3) They were ready and willing to walk me through the entire process step by step and were on call with me till i got it fixed.
    How did they do it
    1) They first asked me to state my problem clearly and asked me a few questions. This was done to detect any physical connectivity issues with the printer.
    2) After having answered this, they confirmed that the printer and the laptop were functioning correctly.
    3) They then, asked me if they could access my laptop remotely to troubleshoot the problem and fix it. I agreed.
    4) One of the tech support executives accessed my laptop and started troubleshooting.
    5) I sat back and watched as the tech support executive was navigating my laptop to spot the issue. The issue was fixed.
    6) I was told that it was due to an older version of the driver that had been installed.
    My Experience
    I loved the entire friendly conversation that took place with them. They understood my needs clearly and acted upon the solution immediately. Being a technical noob,

    sometimes find it difficult to communicate with tech support teams. It was a very different experience with the guys at Online Tech Repairs. You can check out their website www.onlinetechrepairs.com or call them on 1-914-613-3786.
    Would definitely recommend this service to anyone who needs help fixing their computers.
    Thanks a ton guys. Great Job....!!

    ReplyDelete