Google Watch

This morning’s WSJ has an interview with Safa Rashtchy of Piper Jaffray. The analyst just gave a super atomic wedgie to every Google (GOOG) short on Wall Street by slapping a $600 price target on the stock. His old price target was a wussy $445, which Google just gobbled thanks to…well, Mr. Rashtchy’s new price target. He thinks the search giant can make $11.91 a share in 2007. That’s roughly twice what Google made in 2005.
One of the wonders of Google is the way they’ve been able to have Wall Street eat out of there hand at the same time the company slams the financial establishment. I’ve always felt that Google’s unconventionality was a bit affected. They seem to relish the role of outsider too much.
And if you watch carefully, Google has backed down several times when important principles were at stake–principles which they claim they stand for. Never underestimate these moments. There’s a reason why I admire companies like Expeditors (EXPD). A good company shouldn’t be so concerned with attitude.
The Google Dolls love to quote Warren Buffett but the company is perversely secretive. That’s not at the service of shareholders. The Journal asks Rashtchy about Google’s secrecy:

Google publicly discloses very little information about itself. How does that affect your ratings?
I don’t find it particularly difficult because of a couple of reasons. I’ve known Google nearly since it started. And also I’ve covered the search industry longer than other analysts. Google is so big that I liken it to Wal-Mart. If you know the retail market, you have a pretty good chance of knowing how Wal-Mart is doing. I study the broader search market. In reality, Google has a very easy business model. It’s basically how many searches they have done times how much revenue they get per search.
Having said that, Google discloses very little. It poses some difficulty for analysts, but it really poses more risk for investors. Right now, it is a boom time for Google, and people aren’t that worried about a lack of transparency. Should there be any slip or any miss from expectations, investors could be very concerned and there could be some selloff because investors wouldn’t know what caused it. So, yes, it is a factor.

No. Not at all. And by that, I mean yes. Investors could become concerned if at some point investors were to become concerned.
He tells us how well he knows Google, but if he’s such an expert, why has he raised his price target five times since April? His own actions signal that there’s something important he’s consistently missing.
What annoys me about most about Sarbanes-Oxley or the antics of Governor-to-be Spitzer is that they’re only willing to attack targets once they’re down. Where were they before? I’ll be very blunt. Google is one of the most hostile companies to investors possible. What they’ve been allowed to get away with is ridiculous. And the slate is wiped clean all because the stock has gone up.
People like Safa Rashtchy aren’t helping things. Google’s rally isn’t going to last forever. Once the shares fall, some white-haired widow will sob to her congressman, and then we’ll hear the indignation: “Wait a minute! This company has two classes of stock; one with ten times the voting power of the other! How come no one told us?”
Whenver Google is involved it seems to breed weirdness. Just consider the equation of Bear Stearns plus dumb metaphors equaling incoherent drivel. I’ve read this a few times and I’m still lost.

Today, we are introducing the concept of the Google Ecosystem to investors, and with that, we are raising our rating to Outperform from Peer Perform. In conjunction, we are raising our 2006 price target to $550 from $360, reflecting our long-term belief in the fundamentals and the burgeoning Google Ecosystem.
An ecosystem is a community interacting as a functional unit that grows and mutually supports the various components within it. While most people associate the ecosystem with nature, we think it also applies to business sectors and believe Google is in the midst of nurturing its own ecosystem — much like Microsoft and IBM did in the past.
We believe the Ecosystem has five main attributes: Google’s size is developing new sectors as a derivative; Google’s direction and partners should have a resounding effect on existing companies; the Ecosystem should act as self-reinforcing to Google; Google’s hardware competency is underrated and a significant advantage; and the Ecosystem growth should create an economic lift for Google.
As with any ecosystem, the growth of Google’s Ecosystem is susceptible to many risks, including: increased and unforeseen competition; inability to adapt; dependence on overall Internet access and content growth; global political and economic trends; legal risks; key partners within the Ecosystem; and the enforceability of Google’s many patents.
The seminal PageRank patent that launched Google’s success in search was filed in 1998 and issued in 2001 to Stanford (not Google). However, we do NOT believe that PageRank is Google’s secret sauce. We think that the patents flowing from Google since 1998 may provide more important insights into Google’s future, and maybe most importantly, act as a barrier to entry to would-be competitors.

Oh dear lord. This metaphor is like some tiny spider scampering its way across the linoleum of understanding. I, my friends, am the sneaker of logic. I’m still a little dazed but I think we have an ecosystem that faces legal risks? Someone help me out. Perhaps the secret sauce will protect them. I’m just not sure.
In any event, I’m going to raise my price target on Google to $700. And a sack of magic beans.

Posted by on January 5th, 2006 at 6:27 am


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