Will Google hit $1,000? That's the question.
IF THERE WERE ANY DOUBTS that we were back into a new, digital media economy, they were laid to rest Monday when the price of Google's shares topped $600 for the first time, giving it a price to earnings multiple of 49.54, and a market capitalization greater than the three biggest traditional media companies - Time Warner, Walt Disney Co., and News Corp. - combined. Based on Monday's closing price of $609.62 per share, Google has a market cap of $190.28 billion.
Based on their closing prices, traditional media's Big 3 - Time Warner ($71.23 billion), Walt Disney Co. ($68.50 billion) and News Corp. ($49.00 billion) - equaled a combined $188.73 billion.
Looked at another way, Google's market value is now 3.6 times greater than all of Madison Avenue's publicly traded ad agency holding companies - WPP ($17.72 billion), Omnicom ($16.43 billion), Publicis ($8.57 billion), Interpublic ($4.89 billion), Aegis ($2.96 billion), Havas ($2.484 billion), and MDC Partners ($274 billion) - combined.
The relative valuations of the new and traditional media companies are more than just symbolic. They signal investor confidence that allow companies to leverage their share value in stock-based acquisitions that can help companies grow even bigger and more dominant over time. And if Google's high price/earnings multiple seems bubblish, it wasn't apparent to experts on Wall Street.
Analysts from investment giants like Piper Jaffray and Thompson Financial raised their expectations for Google last week, as the company moved closer to releasing its latest quarterly earnings on October 18. Due in part to improved revenue forecasts, analysts at Bear Stearns, for example, have pegged the search giant's stock to reach $625 per share by the end of 2007--setting a target price of $700 dollars.
Google's share price has grown along with its share of search, and push into areas like contextual advertising, and hosted email, calendaring and publishing applications. Shares initially sold at $85 when the company went public in August 2004--and had closed at about $460 by the end of last year.
The search giant's progress has even driven some industry analysts (namely Silicon Alley Insider's Henry Blodget) to forecast shares to hit $2,000 over the next few decades--but this quarter's all-important earnings release will most certainly determine the stock's performance for the near term.
Joe Mandese is Editor of MediaPost.
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