But I don’t expect Google to end up on my investment wall of shame. Barron’s says that this is merely a pause (the article is behind the pay wall). A few snippets:
Despite new rivals, it’s a dynamic online-search business that will thrive as more advertising dollars bolt traditional media for the Internet. [It] has shrewdly positioned itself for the future by placing bets on small but faster-growing segments ranging from mobile displays to video ads. Google could easily extend its stranglehold from conventional search to mobile search.For what it’s worth I think Google’s strategic position is superior to Apple, which the stock market says is 50% more valuable than Google. Apple is dependent upon creative brilliance—much of it residing on the shoulders and health of one man—to keep on winning. Google’s growth is not foreordained, but if it does not make egregiously stupid moves with its base business it should have a very long run à la Microsoft’s riding of the desktop wave. So I’m holding my breath and holding on.
Today its enterprise value is just 10 times the company’s formidable cash flow, a record low and a far cry from 45 in 2005. At these levels, investors are essentially paying for Google’s search engine and getting everything else free.
The downside risk of owning Google shares is 10%, while the upside potential is 50%, says Harry Rady of Rady Asset Management.
Online advertising is still in its infancy with huge potential for more growth as the world’s burgeoning middle class surfs, shops, shoots videos and shares its pictures on the Web.
[Disclosure: I own both GOOG and AAPL.] © 2010 Stephen Yuen