Howling Flaw In What I Learned Skiing

Posted: February 9, 2006 in Uncategorized
The other night I woke up in a cold sweat about my last post.
 
No, nothing about the actual skiing… but my GOOG numbers.
 
My conclusion is right… but my calculation is embarrassingly — boneheadedly? — incorrect.
 
GOOG quarterly comparison year-to-year may "slow" to 50%… and 33%… and 25%… but that’s not the measure I should have used below… rather, I should have used quarter-to-quarter growth rate.
 
It’s tough to figure out what rate to use, they’ve been all across the board for the last two years:  8%, 15%, 28%, 22%, 10%, 14%, and 22% for the most recent q-to-q.
 
So, to be conservative, let’s pick 10% q-to-q growth rate for 2006 (which kinda equals 50% growth per year), 7.5% for 2007 (about 30% growth), and 5% for 2008 (about 20% growth), here’s what the revenue analysis should have looked like:
 
   Q4 05     $1.9b (actual)
   Q1 06     $2.1b (projected)
   Q2 06     $2.3b
   Q3 06     $2.6b
   Q4 06     $2.8b
   Q1 07     $3.0b
   Q2 07     $3.2b
   Q3 07     $3.5b
   Q4 07     $3.8b
   Q1 08     $3.9b
   Q2 08     $4.1b
   Q3 08     $4.3b
   Q4 08     $4.6b x 4 quarters equals about $20 billion run rate
  
 
So, my main statement — that Google will be a $20 billion company before anyone knows it — was correct… but it won’t be in less than two years, rather, about three years… or faster if q-to-q growth is greater than 10%/7.5%/5%.
 
This calibrates with another simple observation I’ve made: 
 
If total advertising per year is $400-$600 billion (Ad:Tech stat), and online takes a 10-15% portion of that by the end of the decade (or faster), then online will represent $40-$90 billion in revs.
 
If GOOG share slips from 40%+ to say a third, then GOOG will still be a $13-$30 billion company by the end of the decade (or faster).
 
So, my 24-month price target stays the same:  $160 billion market cap ($20 x 8 multiple) divided into number of shares available, which keeps changing as more shares come on to the market.  At current share levels, though, this suggests a 24-month price target of $541.30.  Give or take.
 
Sorry for any confusion here!
 
P.S.  Disclaimer:  I am just using simple math.  We all know life isn’t always so simple.  <g><groan>  Appreciate any and all comments!
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Comments
  1. Unknown says:

    I\’ve got to agree with you, there is so much untapped market out there!
    If your thinking about this while you ski, you ought to pull over and rest before you hurt a tree and yourself…(smirk) ….back to the grind

  2. Royal Farros says:

    Good advice… !