From A VC: Google Earnings Being Revised Down
We all knew this would happen but right now its playing out the way I thought it might.
I read an analyst report on the flight out tonight that suggests the near term price target for $goog is $350, down from $450 because google’s revenues next year are likely to grow in the single digits. They predict 6-7pcnt growth next year down from 15pcnt
But they also believe google will take $500mm out of projected operating costs next year and will still deliver over $10.8bn of ebitda
At 10x EBITDA, an attractive multiple for a franchise like google’s, that’s $108bn of enterprise value. If you add their cash, you get a market value of $130bn which translates to about $400/share.
I am not saying google’s going to $400 any time soon. There’s too much selling still going on. Tax loss selling will certainly be taking a toll on stocks for the remainder of the year
But when investors start looking at places to put money back to work in 2009, I wouldn’t be surprised to see google get some attention
With just one significant revenue stream, its forecasted to generate over $10bn of cash flow
And with services like YouTube, Maps/local, productivity (docs, calendar, mail), and android, none of which have been run like real businesses yet, I think it should get back to $500/share within a couple years assuming no real change in market multiples
I bought the stock aggressively on its way down and made most of my purchases between $320 and $275 and went in with a big slug at $280 around three weeks ago
I think we’ve seen the bottom in google. We may retest it one or more times (which should be buying opptys if it happens), but I don’t think we’ll see the stock go below $200 under any scenario
Of course time will tell whether we are heading into a ‘lost decade’
With billions going up in vapor every time I open up the paper (tarp, autos, madoff, hedge fund collapses, etc) we are certainly living a much poorer world and its reasonable to expect that stock prices will reflect lower overall amounts of investable capital.
But you’ve got to put money to work if you want to make some of that lost capital back and I think the titans of web tech are one good place to do that starting in early 2009.
Fred Wilson is a partner at Union Square Ventures. He writes the influential
, where this post was originally published.
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