Hey, you hear Google shares are heading to $2000? Yup, just a matter of time before the search monster has a market capitalization of a staggering $750-billion – which would rank it 15th in GDP if Google was a country.
The $2000 “target” – and I use that term extremely loosely – comes from Henry Blodget, the same guy who brashly predicted Amazon would hit $400 during the dot-com boom. Kara Swisher and Michael Arrington say “ha” but they’re missing Blodget’s point, which, I think, is that online valuations these days are completely relative.
Look at the financial enthusiasm surrounding Facebook, which is rumored to have a $10-billion valuation based on $100-million or so of revenue. Who established that valuation? Some investment banker? Facebook?
Time for some back-of-the-napkin calculations. This year, Google could have have sales of about $15-billion – giving a market cap to sales ratio of 11.5. A $2000 stock price would give it a market cap to sales ratio of 50. While high, it would be HALF of what’s being thrown around in terms of Facebook’s valuation.
You can accuse Blodget of blog post-baiting, outrageousness or cheekiness but who’s to say he’s wrong?
More: To put things in perspective, Google is now trading close to $600 ($584.50 to be exact). After its $85-a-share IPO in August 2004, Google hit $100 that month. It surpassed $200 in February 2005; $300 in July 2005; $400 in November, 2005; and $500 in November 2006.
And…Good Morning Silicon Valley has a great paragraph about Blodget:
I don’t see a big problem here. There are no customers paying Blodget for trusted advice now. He’s one voice among many on the Net, all of which, investors know, should be approached on a reader-beware basis. And given all the red warning flags hanging on Blodget, nobody can claim naivete any more. If he wants to stir the pot with his exercises, fine — it makes for entertaining conversation, and you can take it for what it’s worth. But don’t automatically assume it’s worth nothing. Blodget’s record may make him a lot of things, but stupid is not one of them.
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