Friday, November 18, 2005

Divide By Ten

Google at $400:Is It on Merit Or Just a Mania?

Thus asks the Wall Street Journal this morning, in a rather silly article devoted to a rather silly topic: the meaning, if there is one, of the fact that Google shares hit $400 yesterday.

Don’t get me wrong: I like Google as a business model and a company. And I’m not indifferent to the share price (although I make no recommendations here regarding stocks and never will).

But uncommented on in this morning’s “Merit or Mania?” article is the fact that shares of Yahoo had a much bigger move yesterday than Google—and also reached the same milestone.

Yet nobody seemed to notice.

All you have to do is divide Google’s stock price by ten. Do that, and shares of Google merely rose 53 cents yesterday to close at $40.35.

Yahoo shares, meanwhile, rose over $2.00 and closed at $42.23.

You can also multiply Yahoo by ten to make it comparable to Google: looked at this way, Yahoo shares rose more than $20 yesterday and closed at $422.

Which makes Google's $5.35 pop to $403 a bit less eye-catching, and
in and of itself no big megillah, at least compared to a peer company.

But the fact that Google’s market valuation is larger than Coke, as the article pointed out, is worth looking into.

Jeff Matthews
I Am Not Making This Up

© 2005 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.


mrgnofsafety said...


You beat me to this! Did you see the end of the article? An analyst from "TSG Capital, a hedge fund based in Plano, Texas, that has owned Google shares since early this year", said...

"If there is a stumble, it's going to be down $40 or $50,"

Your'e kidding? It may drop 10-12%?

Stocks NEVER do that! Where do they find these people to give them these quotes?

Would he have said, "If there is a stumble, it's going to be down $4-$5?" No. But as you mentioned, if you just split the shares, that's excatly what we are talking about.

Great post.

cdub said...

Or...YHOO's market cap rose by $3.11B, while GOOG's rose by $1.48B. Fairly significant difference. People just caught up in the "holy cow an internet stock at $400" stuff. Brings back '99 memories.

dkman said...

"Your'e kidding? It may drop 10-12%?

Stocks NEVER do that!"

This is one instance where you should never use the word like "never"

Stocks frequently drop 10+%, over time or in one session, in case of an event-driven move (e.g. bad earnings)

For an example from today's session check out FORD - down 21% right now.

jerseyshore said...

It was a poor article, but the growth in Google's stock price since inception is impression given the time. Yahoo! may of had similar fortune however it was also during a technology driven boom.

BoxedMerlot said...

Good for you.

The issue reminds me of the media's coverage of the Dow in the late 90's as it crossed 6, 7 and 8,000, reporting the Dow moves as dramatic, giant moves each day.

Percentage wise, an 80 point move at Dow 8000 was no more dramatic than a 40 point move at Dow 4000.

The media reported the 80 point move as if it were proof of a more volitile market, as very few radio or television outlets pointed out that the moves were no more dramatic than when the Dow was half.

I spent at least 5 months as a securities broker explaining this to clients who were being jerked around by reporters who were all but "innumerate" on the subject, as the created panic and heat for no good reason.

UrsaMajor245 said...

Barrons has a discussion of Google's (GOOG:NDAQ) valuations, too. Why is Google so frothy right now? Perhaps it a little window dressing. Quite a few securities getting that treatment right now by late to the party mutual fund managers who wish they were hedgies but don't quite make the grade.

Remember, never, ever short into a mutual fund window dressing pump this time of year without the price chart confirming a triple top. That's suicide, even for young hedge fund managers.

muckdog said...

Well, Google is a nice place to do searches. And blog. I don't ever read ads or click on sponsors. Somebody else must be doing that. I still spend way more time on Yahoo.

Its_strange said...

NYT ....Wal-Mart selling $10,000 diamonds online . And other fancy stuff . Why do get the feeling as soon as Wal-mart wants the whole online retailing business it can have it .

black bart said...

muckdog said...

Well, Google is a nice place to do searches. And blog. I don't ever read ads or click on sponsors. Somebody else must be doing that. I still spend way more time on Yahoo.

Ditto. And if i need to do an "important" search, I always back it up with yahoo and msn searches. Always.

Anonymous said...

Jeff, you don't honestly expect the MSM to labor through the concept of percent returns, do you? Big dollar increases and drops makes news! No way you're going to attract any attention putting coherent thought into the mix.
But, in the end, this is why some professional investors make money from retail investors...the public can be too lazy to see through the smokescreens.