From A VC: Thoughts On Google and Apple Earnings
I sold all of my Google and Apple stock recently and explained that I was selling Apple because I felt that Jobs and Apple’s PR were lying to shareholders about Jobs’ health (they were). I explained that I was selling Google because I was getting conflicting signals about the health of their core keyword advertising business and wanted to see some actual results. I sold Apple at $91.36 and Google at $330.
This week we got earnings from both Apple and Google. And I thought I’d talk a bit about what we learned.
Apple had a killer quarter. They surpassed $10bn in quarterly revenue for the first time and had net income of $1.6bn. Macbooks did great and so did the iPod and iPhone franchises. This is a company that is firing on all cylinders and beating the competition in every market they are in. And yet the company carries a market value of less than $80bn. When you take out the cash of $25bn, the company has an enteprise value of $55bn. That is something like 7x EBITDA for probably the best franchise in the computer hardware and CE business. So on fundamentals, Apple is a screaming buy and I’d be buying it if it were not for the fact that I am very uncomfortable with Apple’s lack of transparency on key issues like options backdating and the CEO’s health. So I’ll stay on the sidelines on this one.
Google‘s quarter was not “killer” but they did well enough to calm a lot of fears on the street. Gross revenue, before rev share with partners, rose 18% over the fourth quarter of 2007 to $5.7bn and earnings before one time charges were about $1.5bn, also up about 20% from the fourth quarter of 2007. I’ve felt that Google’s core CPC keyword ad business is fairly recession proof and these results certainly indicate that there is validity to that view. That said, this year will be tough for Google. But they have a lot of excess cost that they have just started to take a look at and I think they’ll be able to grow earnings throughout the downturn with a combination of revenue initiatives and continued cost cutting.
I’d like to get back into Google at the right price. If think anytime you can buy Google below $300, you have to do that. I’ll put some orders in this morning to do just that. I’d also like to try selling some puts on Google and I’d love some advice in the comments about the best strategy for that.
Fred Wilson is a partner at Union Square Ventures. He writes the influential
, where this post was originally published.
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