There are gremlins in our comments script, stand by…
As usual, Philippe is out ahead of what will probably be a PR kerfluffle for Google in China: Varying results around Olympic searches.
The motto of next year’s Olympic games in China is “one world, one dream.” Online, the world is actually split up into several countries, each with their own limited view, made possible through national censorship of the web.
Interesting research note in my mail today from Christa Quarles of Weisel. Highlights:
Headline risk, Checkout and other issues have weighed on Google’s stock year-to-date: Google’s stock is up just 2% year-to-date, compared to a 2% increase in the S&P 500, but nearly a 25% increase in Yahoo!’s stock over the same period. We believe the following issues have weighed on the stock: litigation with Viacom over YouTube; partnerships (such as with Fox) not being quite as robust as expected; expense creep related to Checkout; and a perceived lack of focus in trying to service traditional media.We believe Google’s core search business remains strong, however, as query share continues to improve (Google gained over five points of global query market share over the past year and over 16 points over the last two years) and incremental dollars into search tend to follow the users (who then convert). We expect Google to garner nearly all of the incremental dollars into search in 1Q07, suggesting its core business remains strong. As such, we remain comfortable with our 1Q07 estimates that call for $2.5bn in net revenue (up 13% q/q; 64% y/y) and pro forma EPS of $3.35. Search growth is decelerating, however, and begs the question: what will the next big ad category be for Google? We believe the definitive answer is mobile….
…Valuation:In 4Q06, Google’s organic net revenue increased 73%, compared to 21% for eBay and 14% for Yahoo!. Currently, Google trades at 18x FY07E EV/EBITDA, compared to 16x for eBay and 16x for Yahoo!. Given the high capital expenditure spending compared with eBay and Yahoo!, however, we believe EV/EBITDA less capital spending is a better metric for comparison. On this basis, Google trades at 27x, compared with 23x for Yahoo! and 20x for eBay. Our discounted cash flow (DCF) analysis, which assumes 25% annual 2007E-2012E gross revenue growth, a 12% weighted average cost of capital (WACC) and a 15x 2012E EBITDA exit multiple, suggests a current fair value of $570 on the shares. We rate the stock Overweight.
Does the phrase “sitemaps autodiscovery” get you excited? Then you’ll love this: As reported on the Ask blog and elsewhere, the majors have all agreed to support sitemap autodiscovery via robot.txt.
I’ve been asked to give Hakia, a sponsor, a thought on the future of search. My thoughts, and those of others, can be found here.
This should not surprise you – Viacom, which is fighting Google on YouTube, has struck a search ad deal with Yahoo. This makes sense to keep competitive pressures balanced.
There it was in black and white – Eric Schmidt calling his company an operating system for advertising (a Wired interview).
Wired: How should we think about Google today?
Schmidt: Think of it first as an advertising system. Then as an end-user system — Google Apps. A third way to think of Google is as a giant supercomputer. And a fourth way is to think of it as a social phenomenon involving the company, the people, the brand, the mission, the values — all that kind of stuff.
And that’s exactly what Google has become, and wants to be – the foundation for advertising on the web. But I’d not stop at advertising. It’s clear that the real goal isn’t just advertising. It’s commerce.
PS – I’ll be interviewing Eric at the Web 2 Expo next week…