Google: don't join the mania

Can Google (GOOG) do no wrong? It has, as a new book from John Battelle, The Search, points out, redefined the idea of viral marketing, survived the dotcom crash, pulled off the largest and most talked-about initial public offering in the history of Silicon Valley, and even entered our language as an everyday verb (“to google”).

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Can Google (GOOG) do no wrong? It has, as a new book from John Battelle, The Search, points out, redefined the idea of viral marketing, survived the dotcom crash, pulled off the largest and most talked-about initial public offering in the history of Silicon Valley, and even entered our language as an everyday verb ("to google").

It has also, says Philip Coggan in the FT, just entered the ranks of the world's top 50 most respected companies for the first time.

It's all exciting stuff and there is no doubt that Google is an exceptional company, but does that really justify its current share price of $410, a level that puts it on a p/e of 86 times for this year and 70 times for next year?

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We aren't convinced. Yes, Google is growing fast, but still with a p/e that high it is on a price to growth ratio of nearly two, twice the level most investors consider to represent value. Worse, says Steve Rosenbush in BusinessWeek, it is "essentially a play on advertising", and that's a volatile market that will get slammed as soon as the global economy hits a rough patch. Unrealistic expectations usually bring disappointing returns and the odds are they will this time too.

Annunziata Rees-Mogg
Annunziata Rees-Mogg

Annunziata was a deputy editor at MoneyWeek, covering financial markets, politics, economics and comment pieces. She then went on to the Daily Telegraph as a lead writer where she wrote a column on young women’s financial issues. She was briefly a member of the European Parliament for the East Midlands region in the UK as part of the Conservative Party.  Annunziata continues to write  as a freelance journalist.

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