GOOG Worth $217/Share: Analyst

    October 12, 2005

AnalystMorningstar has an interview with an analyst who sees Google primarily as an advertising company that should be valued on that basis.

So who’s right? Someone who sees Google as an advertising-driven company and only sees that value as germane to the stock price? Or the crowd who see all the other things Google’s doing, and have drunk at least a few sips of Upside Kool-Aid?

They’re both right — it just depends what actually happens. If Google can grow to dominate other markets, the stock today is worth what it is now, or much more. If not, it’s worth $200, or $100 as the shine wears off. No one can know which is true, because the extent of Google’s development of new products, the soundness of their strategies, the quality of those products, competitors’ responses, and consumers’ embrace of those yet-to-be-released products, are all unknown to us.

Me, I’d pay some attention to the contrarian simply because an awful lot of Google’s eggs are in one basket revenue-wise, but so diversified resource-wise. In other words, Google has a lot of projects (and thus growing costs), but just one (very big, potentially vulnerable) revenue stream.

Working on so many different things, and shifting gears often, can carry with it significant costs. Google’s investments in thousands of smart humans looks great until it reaches the point of unsustainability. Perhaps, then, the future of this currently-profitable company depends on how units are managed and held to account. And speaking of unknowns, we as outsiders have little idea of the extent to which claims about Google’s culture of innovation are exaggerated. If it’s always about solving the next problem, then it can be difficult to keep the eye on the ball to continue dealing with mundane everyday operational (already solved) problems. But it’s quite possible that this is something of a fiction and that internally, mundane problems also receive considerable attention. It’s quite possible that a company where the CEO muses about not wanting to solve already-solved problems, and where a chef plays a starring role in a quarterly earnings announcement, is actually just playing possum, secretly working with more traditional management paradigms, as well.

You’d think.

Andrew Goodman is Principal of Page Zero Media, a marketing consultancy which focuses on maximizing clients’ paid search marketing campaigns.

In 1999 Andrew co-founded, an acclaimed “guide to portals” which foresaw the rise of trends such as paid search and semantic analysis.