Google Stock Overpriced or Inflated?

There has been some recent noise regarding Google’s stock price, and earnings. Some say that Google’s stock is overpriced and others say that their stock is simply inflated. Some very respected stock market, and business analysts have added to the Internet noise. (read Geoff Colvin’s article, Don’t Go Ga-Ga for Google) 

The byline for the article was; “The business is a dynamo. The stock is a pipe dream, says Fortune's Geoff Colvin”. These are big words, and in retrospect the wrong words. Read one.

One of Colvin’s most interesting quotes, as far a I’m concerned is:

“Of course, any company's wealth creation rises and falls with its stock price, which raises a huge question in evaluating Google's achievement: Is today's price sustainable? I must report that there's just no way it is.”

The article above was dated July 24^th, 2007, and the today’s date is September 17^th, 2007. In the article Mr. Colvin suggested that Google’s stock price is indeed overpriced, at the same time he goes on to point out these stock facts:

“Google's figure is $149 billion and rising fast, pushing the company past most of America's biggest, most successful, most respected corporations. With Google (Charts, Fortune 500) at its recent record stock price of over $500, only three companies have created more wealth: General Electric (Charts, Fortune 500), Exxon Mobil (Charts, Fortune 500) and Microsoft (Charts, Fortune 500).

According to Yahoo! Finance Google’s stock price is presently at $525 per share, which is higher than the date of Colvin’s article. So where is the rapid correction in Google’s so-called inflated stock? I’ll tell you where…NO WHERE TO BE FOUND. Why you ask?

To fully understand the staying power of Google’s wealth and their business model, you need to be intimate with the bread and butter of their business. Paid Search Inclusion, or Adwords. I am intimate with Adwords and this is why I believe Colvin’s theory is way down the road.  

I live in a city that just hit it’s one million mark for population (Calgary, Alberta), and I’ve been doing business for some local companies, in which I use PPC advertising to promote their businesses. The level of competition I have from other companies in town is next to nothing. The simple fact is that only a scant number of companies (percentage wise) have been introduced to pay-per-click advertising via the Internet, and thousands of companies a month are rushing to their local SEO companies to sign-up for Adwords, and start spending mo-money.  

The saturation level that Colvin is suggesting for Google’s earning ceiling and inevitable decline in stock price makes sense for a bricks & mortar company, that requires great investment to increase their customer base. In the Internet world you grow a business at a breathtaking rate, and there is no need for a large investment.

I believe that Google’s stock is going hit a ceiling someday, but it won’t be anytime in the near future. Their growth is just beginning, as the percentage of companies still using standard advertising methods, and not Google PPC advertising is between 85–90%. Google Adwords is still a strange word to the overwhelming majority of businesses around the world. There is room for growth.

All the records of the past will one day be broken. Sports professionals break old records every year, and Google has already proved their model is one of the most powerful (if not THE most powerful) business model since the dawn of post industrial revolution business.

But then again…….what do I know?