Google could double in a year, or it could be like any other internet advertising company and fall to a reasonable price to earnings ratio of say 15... which would be a factor of 10 drop! A table showing Google's total shares available for trading vs. time is an eye opener: Here is a quick summary:
As of IPO: 24.6M shares
As of IPO+6 months: 287.1M shares
I think only fools buy a 24M share stock offering when they know that 287M more shares, with a near zero cost basis to those who own those additional shares, will be on the market in less than a year.
According to Richard Peterson, chief market strategist for Thomson First Call, more than 5,000 companies went public between 1989 and 2000. Nearly one-third of those companies are down 50 percent or more since their stock market debut, Peterson said -- if they are even still in business! Only one-fifth are worth at least twice their opening day price. Few of these 5,000 companies had the hype that Google has had.
When I Would Be Interested in Google
I want to be buying stocks when insiders are buying, not when they are selling, even if to diversify and cash in on an IPO bonanza. Google could drop from an IPO of say $100 to $30 and insiders would still want to sell shares as their cost per share is next to nothing, if not nothing!
Google Competitive Advantage
I want to own companies that have a difficult, if not impossible, to duplicate competitive advantage. EBay's competitive advantage is their large number of buyers and sellers. Google's advantage is good search results that you don't have to wait long for. The speed can be duplicated by buying hundreds or thousands of off-the-shelf, cheap computers. The hardware is very easy to duplicate, as no patent is needed to network hundreds of computers to make a web site fast. The other competitive advantage is a good search algorithm, which many competing sites have.
Google is making money by combining speed with good search results where they can afford to add text based ads to their search results. They are even getting their pay per click ads shown on the web sites of others (like Suite101.com) where they share some of the ad revenue with the web sites who display the ads. The revenue growth this brings will only last so long before it saturates.
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