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Google Has Competition: Yahoo, MSN Et Alii

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February 16, 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."

         

For those new to investing, guidance is a hypothetical projection of earnings offered by a publicly owned company to investors and other interested parties to provide a basis for making future financial decisions about the company. Stock analysts use these figures to make their own projections of future company earnings. While not employees of the company in question, stock analysts for all intents and purposes are using company data to make their projections on earnings subject to whatever adjustments they decide to make. So for most intents and purposes these are pretty much the same numbers, but are not guaranteed since the future, as everyone knows, is unpredictable.

Thus, earnings projections for Google, GOOG, of $12.74 for 2007 and $17.07 are just hypothetical, not guaranteed. However, since its two biggest competitors, Yahoo, YHOO, and Microsoft, MSFT, also have earnings projections it is easy to compare expectations for the companies.

The December, 2007 per share projection for Yahoo is $0.54 and for December, 2008 it is $0.73. At a share price of around $32.00, it is 62 times the trailing twelve months earnings on Yahoo finance. $32.00 is also 45 times the projects 2008 earnings. This is a very rich multiple making the stock risky unless Yahoo undertakes a major acquisition or attracts a better share of advertisers with the new search advertising technology it is rolling out.

Microsoft, MSFT, is another major competitor for Google with its MSN division and there are reports that Microsoft, too, is looking to improve its search advertising results. It also is rolling out a new pc operating system named Vista and is trying to position Zune as competition to Apple’s iPod and is into other aspects of computer related business such as gaming and wireless systems. The projections for earnings before Steve Ballmer’s warning about analysts overoptimism were $1.47 per share for June, 2007 and $1.70 for June, 2008, about 15% growth. Its share price of about $30.00 is its highest since June, 2001 with a high of $50, adjusted for splits and dividends, in December, 1999. Ironically, Mr. Ballmer’s warning is likely to dampen interest in the stock for a while, even though its price earnings ratio of around 20 is comparatively reasonable and the dividend is clearly a plus.

All three companies are very likely to be around in ten years with higher stock prices, but as matters stand the best of the three is clearly Google.