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Using Google’s Earnings Guidance, The Stock Has Upside Potential

Read more articles on Internet and Investing.

February 15, 2007

Posted by neillevine

About This Editor: I am a writer. Have been writing for other sites, but expect to do most of my future work HERE! My expertise extends from the esoteric such as burning hydrogen to the unpredictability of the stock market and my writing makes me a jack of all trades and exasperated master of none. I have had some influence over national wildfire and water policy and there are hints of a change in energy policy, BUT as Samuel Goldwyn once said, "A verbal promise is not worth the paper it is written on."

         

Hypothetically, people can invest their own money in the stock market and turn a profit, but after a while you learn handling money is a time-consuming job, sometimes becoming pretty much full time since there is a lot of research, other work and thought involved in getting a sound return on your capital. Unless you are leaving your money in the bank or buying some fixed income instrument, which sometimes can go south, it still takes dedicated effort and due diligence to make sure all the factors adding up to a profit are correct.

You also need experience in investing money since being there and doing that are part of a good financial education. While predicting the future is difficult, almost nothing ever goes exactly according to plan , encountering diverse investment situations in real time helps an investor figure out the potential future rewards available.

Google, GOOG, has been in the financial news lately because it has turned in very good earnings results and is facing problems using other companies copyrighted material, a very touchy subject that is going to take time to settle. It went public at about $85 a share in 2004. It is currently near $460 a share and has reported net income for 2006 of about $10 a share. Guidance on earnings for 2007 is $12.74 and $17.07 for 2008, meaning the company still expected to turn in very good financial results for the foreseeable future, particularly in 2008.

How are they going to do this. Well, they are growing with the internet and Yahoo and MSN are still playing catchup in search advertising. But, most importantly, GOOG is in full possession of YouTube where traffic is over 70,000,000 eyeballs a day. There is no Google advertising on the site right now because that would open up the company to lawsuits from copyright owners. One interpretation of the earning projections for 2007 and 2008 is that the company expects to take about a year to sort matters out and then start making money.  Multiply 70,000,000 by a charge per eyeball times 365 days and you can see serious money adding up to the 2008 guidance of $17.07.

This first class growth usually commands a high multiple of possibly 40 times earnings, with $17.07 being seventy percent more than $10.00. Do the math and assuming things work out there is a lot of upside potential for this stock in the next two years, if their numbers are correct and things grow according to plan.