I must admit, I was one of those who thought that buying Google shares around their IPO time was not a sensible thing to do, and as the share price then continued going up, I kept thinking that it was too late to jump on. Back in January 2007, Robert X. Cringely wrote an article “When Being a Verb is Not Enough: Google wants to be YOUR Internet“, and it convinced me that it was not too late to jump on the Google stocks.
In the article he talks about the fact that Google at the time “…controls more network fiber than any other organization.”. They were in the process of building a massive data center not far from where Mr. Cringely lives, and they had been building other large data centers elsewhere in the US, particularly where the data centers could be located next to power plants.
He further makes some guesses at why Google needs so many big data centers around the US. It is probably worth also linking to another Robert X. Cringely article from November 2005, “Google-Mart: Sam Walton Taught Google More About How to Dominate the Internet Than Microsoft Ever Did“, where he tells about the Google data-center-in-a-shipping-container “that can be dropped-off overnight by a tractor-trailer rig”.
Jumping back to the “When being a verb is not enough” article from this year, Cringely says that “Google intends to take over most of the functions of existing fixed networks in our lives, notably telephone and cable television” and “Google will become our phone company, our cable company, our stereo system and our digital video recorder.”
He goes on to say that Google will end up
…assum[ing] most of the market capitalization of all the service providers … about $1 trillion in all — which places today’s $500 Google share price about eight times too low.
It’s a grand plan, but can Google pull it off? Yes they can.”
Even if it doesn’t quite happen that way, I realised, that with the entire infrastructure (servers and network fiber) Google has, they really have the capacity to support almost any internet-based task. Even if a start-up invents a better mouse trap, they would most likely find it difficult if not impossible to roll out necessary infrastructure before Google either buys them or develops a similar mouse trap in-house.
In July 2007, Google released second quarter 2007 financial results that disappointed the market, and the share price dropped. Shortly afterwards I bought Google shares at $520, and I intend to hold them for the long term.
Go to my Covestor profile if you want to see my returns on Google shares so far.
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3 users commented in " Google (GOOG) "
Follow-up comment rss or Leave a TrackbackI don’t know whether to buy or sell. I read articles from bulls like you. Bears are there too. One investor is clear on why he sold at $741. Who knows?
http://www.vestopia.com/Blogs/DirectorBlogEntry.aspx?postId=13350&piid=39
I have just read the post on Vestopia you refer to. I have not studied statistics, so I may be completely wrong, and would love to have someone educate on the matter, but is seems to me that Mark Hines’ research is faulty. He says that because Google have “had freakishly high growth rates over the last several years … it’s time for some regression toward the mean.” If I was being unkind (I am, but not usually) I might think that Mr. Hines wants to blow his trumpet about having sold so close to the top…
The Wikipedia article he refers to mentions an example with “regression towards the mean” where students take tests and get scored. The article goes on to say that “scores are a combination of skill and luck. If you choose a subset of people who score above the mean, they will be (on average) above the mean on skill and above the mean on luck. On a retest their previously above-average luck will revert to about average. They will therefore score above the mean due to their above-average skill, but not by as much as they did the first time because they will not be as lucky as they were the first time.”
So how does this apply to Google? I think every one would agree that they have had luck, but have they also had skill? The skill will not necessarily regress towards the mean, only the luck will. So has Google results been because of 25% luck and 75% skill, or was it 75% luck and 25% skill. If it was more luck than skill, then yes, regression towards the mean would pull them back to, well, the mean, but that would happen already on the second or third test. For a company like Google, every quarter is a test, regression towards the mean should have pulled them down long ago, in what I read about it there isn’t anything that says you can have 12 good quarters and one bad and THEN regression towards the mean kicks in.
Mark Hines then goes on to talk about Google’s paid search advertising, that “they will eventually need to find new sources of growth” and that “recent initiatives … are very far from the company’s core competencies”. So should they find other sources of growth or shouldn’t they? Mark Hines doesn’t seem to be so sure.
In “Only the Paranoid Survive” by Andy Grove he describes how Intel was once a company whose core competency was memory chips. The company decided to completely ditch memory chips and leave it to their competitors and focus on CPU’s instead. So Intel is an obvious example that a company doesn’t have to stay with its core competency to become even more successful than it originally was. My post mentioned Google initiatives that possibly do take it away from its original core competency. I can’t say for certain that they are in fact doing what Mr. Cringely thinks they are doing, but like him, I think Google can pull it of (if they are doing it).
So, congratulations to Mr. Hines on managing to sell so close to the 52-week high. I think regression toward the mean will mean he won’t be so lucky next time. I am also quite certain that Google’s growth eventually WILL level off; I think it may already have happened, but the level it has levelled of at (and that I hope it stays at for the future) in my eyes still makes it a superb share to own.
Remember, take a look at the disclaimer, I am not a financial adviser; this constitutes my own thinking on the subject.
Mark Hines is a stud!!!!
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