Google – look at the bigger picture

As we all know, Google got whacked because it missed Wall Street’s projections.  Sure, investor expectations are quite high for Google especially when they are paying 90x earnings.  However, the reality is that the company is still performing quite well.  From my perspective, when investors pay such high multiples for these companies, the inevitable correction in market price will happen.  That being said, let’s focus on the numbers that really matter, revenue and profits. Google still did deliver $372mm in earnings on $1.92b of revenue up from $204mm in earnings the year before. 

Sometimes we all focus on the short-term at the expense of looking at the long term.  Sure Google is overvalued now but the company is delivering some impressive results.  Remember the First Law of Technology:

"A consistent pattern in our response is to new technologies is we simultaneously overestimate the short-term impact and underestimate the long-term impact."

Well, we did that starting in 1995 when Netscape went public and are doing it again today. And remember Scott McNealy touting "the network is the computer" years ago. Somewhere lost in the translation was this comment from Eric Schmidt when asked about Google’s entry into consumer electronics (thanks to David Jackson who runs the Internet Stock Blog and has been posting transcripts of investor calls):

There’s an awful lot of speculation about Google playing in those markets. The Google PC, those kinds of things. To me, most of those are people projecting the last one, not the next opportunity on us. And from my perspective, those are not very interesting business opportunities; they’re well covered in the market, we partner with many of the players and we would much prefer to deepen our partnership with them than to go into competition with them.

We are relentlessly focused on this new end-user experience, which is multi-platform and based on the internet and that’s where our future is. That’s where the growth is, that’s where the revenue and monetization is. And, as I mentioned earlier, it’s so large, it makes no sense to divert our resources to these other and somewhat smaller opportunities.

Sound familiar?  The network is the computer, the web is a platform, the browser is the OS, services will live in the cloud, and we will access information from anywhere, anytime, and any place.  Once again, sometimes we overestimate the short-term impact of new technologies and underestimate the long-term impact.  This is why I am so excited to be investing now because if you believe services will live in the cloud and anything that can be digitized will be digitized (media, voice, etc.)then I am sure you will agree with me that we are just in the second inning.  And this is not just a consumer-driven change, this will affect enterprises as well.  So Google missing its incredibly high expectations is not all that bad because when looking at the bigger picture, Google is still delivering some spectacular results and causing the old guard to get with it and respond to the changing times.

BTW, it doesn’t mean I would buy the stock at these valuation numbers and nor do I own it now but the point is that there is still plenty of significant opportunities for startups to create value in the years ahead, especially since Google will not and cannot do everything.