Google at $700? What About the Quality of Assets?

Now that Google has a higher market cap than Berkshire Hathaway, I feel compelled to go against about 99% of financial bloggers, who all seem to be long Google, and ask… does quality of assets matter? What is the risk that Google's assets (their massive traffic, for example) suddenly generate a lot less cash flow than the assets of Berkshire Hathaway? I'm an investor, not a speculator. I'm very concerned with risk and with protecting my capital. And here is what worries me.

1. Google has limited success outside of their core search product. Gphone? OpenSocial? So what? Maybe those will be two other areas where Google will fail. Weren't people talking about how revolutionary GoogleBase was at one time? Until I see them make serious money from a second act, I'm not willing to pay a price for the "potential" of the Gphone.

2. Somewhere, someone is working on a natural language search engine that will blow Google out of the water. The company is too tied to old ways of thinking about search (does anyone care about Pagerank anymore?). Once I can go to a site and ask "What is the average rainfall in Kentucky" without having to use funky ANDs and ORs and quotes, and instead of getting pages that have similar words, I get an answer, I think Google's traffic could drop dramatically within just a few months. I follow A.I. research, and I think this day is coming, and it won't come from Google. (This is why I like Yahoo better. Content is a more stable play.)

Don't get me wrong. I'm not shorting Google. I think the stock will continue to go up as the irrationality mounts. By all means, ride the hell out of it if that is your thing. But, I think the quality of Google's asset base is much lower than most other web companies, because their primary product is still one that needs dramatic improvement. That exposes them to a competitive risk that isn't as much of a concern for Amazon or Ebay or Yahoo.

  • Joe

    The people who are excited about the gphone are the same crowd who thought Michael Jordan would be a good baseball player. Baseball ain’t basketball, and software ain’t hardware.

  • You know what this means, of course:

    Buy more BRK.B.

  • Dre

    The Michael Jordan comment is pretty off base. Michael Jordan couldn’t buy baseball talent. Google can go out and recruit the best engineers out there when it comes to mobile phones. Its not in the least bit the same. What is stopping them from doing it and why wouldn’t someone want to work for Google? They are going to do it. The best and brightest out there today are working for Google.

  • raj

    I always find it interesting that a company who is supposedly offering web services good for all of us would ensure that most of us never own a share (and thus be able to vote at shareholder meetings) by not having split the shares yet.

    Had they split 2, 3 times, I still think the stock would be at $300-400, and thus they’d have an even bigger market cap. But for some reason, they don’t want the average investor to own them. Don’t be evil, G.

  • Rob

    I’ve read several articles that indicated the opposite – that the best and brightest were choosing other startups over Google.

  • Thank God there’s someone else in the world who thinks this way besides me!

    I have never denied the superior nature of Google’s search engine over its competition (though I would argue that Ask, Live, and Yahoo! have narrowed the gap considerably of late), and when I need something specific right now, Google is where I go to find it.

    Still, at the end of the day Google is still just a search engine, and no matter how hot-and-bothered the code-monkeys might get over Google Labs and its progeny, I just don’t see how that warrants a $700 stock price.

    If you click the link in my name, you’ll see that I once said that Yahoo! shareholders need a swift kick in the ass; I’m going to expound on that and say that Google’s shareholders need their head examined; the company is *not* worth $700 per share.

  • I thnk I can show you a scenario where the Google phone generates $100 billion a year in revenue. Sure it’s optimistic but there’s a history here that most people don’t know. If I’m right, what is Google worth then?

  • Rob

    I can see that. Give me a free gPhone and hit me with extremely targeted advertising, multiply that by a few hundred million people, and it’s a huge number of ad dollars flowing through Google. But can they pull it off against some of the most powerful and cash rich companies in the world? That’s a hell of a fight, and not one I’m willing to concede to Google (and thus incorporate into their stock price) just yet.