Google’s down almost $60 on the day, or more than 10%. So here’s our question:
How are all you folks who assured everyone that Google and search are recession proof feeling? Are you backing up the truck? Or are you beginning to think we might have a point?
We’re as wild about Google’s long-term opportunity as you are. But we think the $200 point plunge over the past month illustrates that the market is finally recognising that Google is, in fact, a participant in the world economy
At $525, Google’s enterprise value is now about $170 billion. That’s about 38 times run-rate free cash flow of $4.4 billion. That’s not cheap, but it’s also not nutty. Even in an out and out depression, we doubt Google would trade below 25X free cash flow, so as long as the company can maintain its current cash flow, the downside is becoming more limited (i.e., now it’s only about 30%-40%).
Of course, if things get really bad, maintaining cash flow may not be so simple. e’re not backing up the truck just yet.
Disclosure: Henry Blodget has exposure to Google through an S&P 500 index fund.
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