GOOGL - Google

[Guest wellmont]

 

I guess in an upside down world where losing massive sums of shareholder capital is a good thing, then you could call bing a great investment. I call it a terrible one.

 

You know nothing, John Snow!  ;)

 

What else would you do really? Winding down operations and returning cash to shareholders is NOT an option, on one hand it's core business is in decline, what else are they going to do but use operating cash to finance a new business line? Anyways, Bing is nearing profitability and has seen some strong growth since inception.

 

review what Oracle and IBM have done over the last 10 years. they've made great acquisitions in the enterprise space, and in the case of IBM, has bought back tons of stock. there are always great alternatives to losing billions of $$ a year.

[Palantir]

Microsoft has bought tons of stock and grown strongly in the enterprise space.

[Guest wellmont]

Microsoft has bought tons of stock and grown strongly in the enterprise space.

 

that's not an excuse for throwing billions down the drain. but we can agree to disagree.

[VAL9000]

that's not an excuse for throwing billions down the drain. but we can agree to disagree.

 

The counterpoint here is that if Google weren't such a formidable competitor, Bing would be a leading technology and we'd all be talking about Ballmer's brilliance.

 

It's not that Bing is bad.  It's just that Google is so much better.

 

[Guest wellmont]

that's not an excuse for throwing billions down the drain. but we can agree to disagree.

 

The counterpoint here is that if Google weren't such a formidable competitor, Bing would be a leading technology and we'd all be talking about Ballmer's brilliance.

 

It's not that Bing is bad.  It's just that Google is so much better.

 

But we have to deal in realities and not hypotheticals. Why didn't IBM try to create a search engine or buy one and try to take on Google? they easily could have. They had the resources and probably the technology seeds. They likely sized it up and said it was a poor use of capital. msft has lost billions with their online ventures. and that's not even counting aquantive. Online was never in their DNA. Msft put yahoo search out of business by throwing money at it. Bing took out google's strongest natural competitor. now yahoo is in the position of reselling an inferior product.

[Palantir]

How would you suggest Microsoft develop a consumer oriented web business? As its critics say, MS missed the boat on tablets, search, phones, web etc. Being a consumer firm, they need to have a web business, or at least a major presence, just to stay relevant. How to develop one?

 

IBM is a different business, MS straddles between enterprise and consumer, and their fortunes depend on one or two products, in addition, MS doesn't need to turn around the biz the way IBM did, MS is kicking ass in terms of financials and have been getting a lot of things right as well.

 

 

 

You (not just you personally, but figuratively) keep focusing on "capital allocation", you seem to imply as if CEO's get a list of investments at the beginning of the year, and all they need to do pick the highest returning one, and if not, then return it to shareholders...broadly yes, they have to allocate capital, but returns are unknown, risks are unknown...Warren Buffett and David Einhorn have the luxury of not swinging at every pitch, Ballmer may not. Just IMO.

[Guest valueInv]

 

I told you from the beginning of this debate that it was Google who could make $3bn with the search share, not Microsoft.  Microsoft loses the $1.5bn/year to keep Google from having that search share.  This is the same thing I've said multiple times.  I am using a combination of Google's revenue figures and Microsoft's revenue figures to come up with my $3bn estimate.  What are you using to show me I'm wrong?

What is the cumulative amount? What is the money they have spent in indexing vs queries?

 

 

I'm only explaining why something is done.  I'm not dabbling in figments.  Bing, G+, Apple Maps all exist and they are second rate, but they are important none-the-less.

 

Apple Maps arguably pushed Google into spending $1bn+ on Waze.  Another example of why competition is not as linear as you make it out to be.

Another example of rationalization.

 

You seem to not understand that a CEO and the executive team is hired to increase shareholder value, not to take competitors down. The BoD is elected to protect shareholder interests, not to ensure healthy competition in the market. That is the FTC's job.

 

 

We're talking about Google's profits if they had Bing's additional market share.

 

I'm not. The topic of this conversation is how much damage MSFT is doing to itself in trying to take down Google.

 

If they did want to increase costs of Google there is a much cheaper way than to lose billions building a search engine:

 

Go to the top 25 CS departments in the US and offer its graduates  $10,000 every year as long as they don't work for Google. They can work for anyone else they choose too. Much cheaper.

 

Uh, no, how about you disprove the statement?  I did the math from the '04 prospectus.  I refuse to share it because you'll just nit-pick it to shit while ignoring the broader truth.

 

Why don't you lift the costs, break them into what's fixed and variable, and show me how 10% is way off the mark ?

 

Here, I'll do it for you:

Google's profit margin today is 25%

100% - 90% variable costs => profits of less than 10%

25% > 10%

Therefore you're wrong.

 

And a terrible guesser.

 

1 So your story suddenly changes from "guessing" to "I did the math"?

 

2, You think the what ever numbers you used from 10 years ago are true in the technology industry today?

 

3, 90% variable costs tells you nothing about profit margins. It means a cost breakdown - 90% variable, 10% fixed. The margin will depend on the revenues.

The problem is not with my guessing. ;)

[Guest valueInv]

How would you suggest Microsoft develop a consumer oriented web business? As its critics say, MS missed the boat on tablets, search, phones, web etc. Being a consumer firm, they need to have a web business, or at least a major presence, just to stay relevant. How to develop one?

 

IBM is a different business, MS straddles between enterprise and consumer, and their fortunes depend on one or two products, in addition, MS doesn't need to turn around the biz the way IBM did, MS is kicking ass in terms of financials and have been getting a lot of things right as well.

 

 

 

You (not just you personally, but figuratively) keep focusing on "capital allocation", you seem to imply as if CEO's get a list of investments at the beginning of the year, and all they need to do pick the highest returning one, and if not, then return it to shareholders...broadly yes, they have to allocate capital, but returns are unknown, risks are unknown...Warren Buffett and David Einhorn have the luxury of not swinging at every pitch, Ballmer may not. Just IMO.

Sell Bing back to Yahoo and take a stake in Yahoo. Meyer will do a much better job with  Bing than MSFT can.

Or sell it to Apple if they are willing to buy.

 

Focus on defending the OS and Office markets. Stop playing games like releasing Office only on the iPhone. Apple is going to release a major upgrade to their iWork suit and they will win over more customers if MSFT keeps dragging its feet.

 

Stop screwing customers over with the XBox a few months before Apple is getting ready to announce something in the television space.

 

In other words, nip problems in the bud instead of chasing the institutional imperative, as Buffet says.

[Guest valueInv]

that's not an excuse for throwing billions down the drain. but we can agree to disagree.

 

The counterpoint here is that if Google weren't such a formidable competitor, Bing would be a leading technology and we'd all be talking about Ballmer's brilliance.

 

It's not that Bing is bad.  It's just that Google is so much better.

 

I wouldn't be so sure  ;):

 

http://techcrunch.com/2013/03/21/bing-just-got-a-lot-smarter-now-knows-more-about-people-and-places/

[Palantir]

What good would selling Bing to Yahoo do? Also, MS did try to buy Yahoo earlier, which was widely panned. But now you're suggesting they do that? huh?

 

MS doesn't want to focus on its OS and office businesses. OS is a declining business, and MS needs to build out other franchises, and web is crucial. Furthermore, they are doing many things right, like the S&T business, but oh that Bing....

 

It seems that the value investors want MS to think like a cigarette company - focus on and milk core businesses for cash and return it to shareholders. Yeah right.

 

Xbox seems to be a good product - plus they are targeting a broader audience, not the "guys who don't have girlfriends" market. As for Apple TV, they've been planning to release it for years....

[Guest valueInv]

What good would selling Bing to Yahoo do? Also, MS did try to buy Yahoo earlier, which was widely panned. But now you're suggesting they do that? huh?

 

I'm advocating selling, not buying.

[Palantir]

Sell Bing back to Yahoo and take a stake in Yahoo.

[Guest valueInv]

Sell Bing back to Yahoo and take a stake in Yahoo.

 

Yes, exchange it for a stake in Yahoo. Meyer can run Bing better than MSFT and generate better returns. By taking a stake, MSFT benefits from turnaround and Yahoo's growth.

 

Bing is almost as good as Google in terms of search capability but has two problems:

- mindshare

- ad infrastructure and operations

 

Yahoo and Meyer can help with both. But now have to shell out cash, they can use cash to invest in solving both those problems and build adjacent web businesses.

 

Everybody wins.

 

New think about the alternative - they hold on to Bing as their OS businesses decline. They will be big trouble and not be able to invest in Bing. In that case, they desperately need Apple to push Bing's marketshare up.

[Palantir]

I don't see why Mayer can run Bing better than MS.

 

 

The way I see it is Bing's biggest problem, as you noted is mindshare, not that Google's results are any better than Bing - they're the same to me IMO.

 

A deal with Apple's iOS is probably better for MS - it will remove Apple from Google's tentacles and give MS a huge market. They'll have to pay a few Bill for it....but that's never stopped them. :) I presume Apple has considered it, given that Bing will back up Siri, and they're already partnering on iCloud.

[VAL9000]

 

I told you from the beginning of this debate that it was Google who could make $3bn with the search share, not Microsoft.  Microsoft loses the $1.5bn/year to keep Google from having that search share.  This is the same thing I've said multiple times.  I am using a combination of Google's revenue figures and Microsoft's revenue figures to come up with my $3bn estimate.  What are you using to show me I'm wrong?

What is the cumulative amount? What is the money they have spent in indexing vs queries?

 

 

I'm only explaining why something is done.  I'm not dabbling in figments.  Bing, G+, Apple Maps all exist and they are second rate, but they are important none-the-less.

 

Apple Maps arguably pushed Google into spending $1bn+ on Waze.  Another example of why competition is not as linear as you make it out to be.

Another example of rationalization.

 

You seem to not understand that a CEO and the executive team is hired to increase shareholder value, not to take competitors down. The BoD is elected to protect shareholder interests, not to ensure healthy competition in the market. That is the FTC's job.

 

 

We're talking about Google's profits if they had Bing's additional market share.

 

I'm not. The topic of this conversation is how much damage MSFT is doing to itself in trying to take down Google.

 

If they did want to increase costs of Google there is a much cheaper way than to lose billions building a search engine:

 

Go to the top 25 CS departments in the US and offer its graduates  $10,000 every year as long as they don't work for Google. They can work for anyone else they choose too. Much cheaper.

 

Uh, no, how about you disprove the statement?  I did the math from the '04 prospectus.  I refuse to share it because you'll just nit-pick it to shit while ignoring the broader truth.

 

Why don't you lift the costs, break them into what's fixed and variable, and show me how 10% is way off the mark ?

 

Here, I'll do it for you:

Google's profit margin today is 25%

100% - 90% variable costs => profits of less than 10%

25% > 10%

Therefore you're wrong.

 

And a terrible guesser.

 

1 So your story suddenly changes from "guessing" to "I did the math"?

 

2, You think the what ever numbers you used from 10 years ago are true in the technology industry today?

 

3, 90% variable costs tells you nothing about profit margins. It means a cost breakdown - 90% variable, 10% fixed. The margin will depend on the revenues.

The problem is not with my guessing. ;)

 

Ok then, I agree to disagree with everything you've written in reply.  None of it is correct in my opinion.

 

 

[txlaw]

Wow, I just saw the longest Samsung commercial yet during Game 5 of the NBA Finals. 

 

Jay-Z just got paid.

[Guest valueInv]

I don't see why Mayer can run Bing better than MS.

Just a hunch ;):

 

 

[TwoCitiesCapital]

IMHO I think you sold a bit early, but then again, my estimate of FV is above 900, and I think it'll hit 1000 sooner than later (famous last words?). I mean this is a global monopoly with an annuity stream everytime you hit search...but then again your cost basis was pretty low so obv it worked out well...

 

I agree. Those were my theses when i first purchased it. The strength of its brand was also a big selling point. I have no doubt it will hit 1000 eventually. My problem is that the threat of p/e contraction is too great at these multiples even if the business executes perfectly. I have this theory that the majority of stock market gains and losses come from P/E expansion and contraction. Very much like 90% of bond gains or losses can be explained by parallel shifts in the yield curve. Google could execute perfectly and fall to a P/E of 15 and you'd still lose 15-20% over the next 3 or so years at a minimum. What if the business doesnt execute perfectly? I'll start building a position again if it falls below a 17 multiple on earnings or below a 15 multiple on owners earnings.

 

Just to further reiterate this point:

"looking at the last hundred years, stocks fell by an average of 4.2% per year during bear markets while nominal GDP grew an average of 6.9%. During bull markets, however, stocks gained an average of 14.6% per year, while nominal GDP grew at an average of 6.3% per year. Surprisingly, nominal GDP grew faster on average during bear markets than in bull markets. Although economic growth does increase the earnings portion of the price/earnings ratio, the trend in overall level of the P/E ratio is frequently the largest driver of actual returns." -unexpected returns

 

Google trades at a P/E of 26. Sure you can ex out cash, but the fact still remains that any significant P/E compression back to normalized multiples would significantly overcome any reasonably expected earnings growth out of Google. Even if earnings grow at 15% a year for the next 4 years, moving back to a multiple of 15 would mean you'd end up lower than you began. I don't think Google is ridiculously overvalued, but I think general market risk is high and the idea of perfect execution and high rates of compounded growth still leading to a loss after 4 years isn't what I would call a good deal.

 

[Guest valueInv]

Monetization of Google Glass:

 

[Guest valueInv]

They're taking the punch bowl away:

 

http://online.wsj.com/article/SB10001424127887324637504578567283575391380.html

[Palantir]

 

 

Just to further reiterate this point:

"looking at the last hundred years, stocks fell by an average of 4.2% per year during bear markets while nominal GDP grew an average of 6.9%. During bull markets, however, stocks gained an average of 14.6% per year, while nominal GDP grew at an average of 6.3% per year. Surprisingly, nominal GDP grew faster on average during bear markets than in bull markets. Although economic growth does increase the earnings portion of the price/earnings ratio, the trend in overall level of the P/E ratio is frequently the largest driver of actual returns." -unexpected returns

 

Google trades at a P/E of 26. Sure you can ex out cash, but the fact still remains that any significant P/E compression back to normalized multiples would significantly overcome any reasonably expected earnings growth out of Google. Even if earnings grow at 15% a year for the next 4 years, moving back to a multiple of 15 would mean you'd end up lower than you began. I don't think Google is ridiculously overvalued, but I think general market risk is high and the idea of perfect execution and high rates of compounded growth still leading to a loss after 4 years isn't what I would call a good deal.

 

I don't disagree...but I have no idea of predicting multiple expansion or contraction. I just see that the firm is so globally dominant and so stable, almost like a consumer staples stock, it may well deserve a high PE for a long time. I don't think the stock has much upside now though.

[txlaw]

I'm curious.  How many of you techies/developers on the board are following/waiting for Ubuntu for Android?

 

And how much would you pay for a Motorola X phone that comes pre-loaded with Ubuntu for Android?

[txlaw]

I'm curious.  How many of you techies/developers on the board are following/waiting for Ubuntu for Android?

 

And how much would you pay for a Motorola X phone that comes pre-loaded with Ubuntu for Android?

 

Or a tablet that also can run Ubuntu?

[rkbabang]

I'm curious.  How many of you techies/developers on the board are following/waiting for Ubuntu for Android?

 

And how much would you pay for a Motorola X phone that comes pre-loaded with Ubuntu for Android?

 

I'm not sure phones are powerful enough yet for that to be something I'd want.  I have a Raspberry Pi, which is basically Linux on ARM.  It is fun to play with, but awfully slow compared with Linux on an x86 PC.  As mobile processors get faster and phones become more powerful I'd love to have just one computing device which worked as a phone in one mode and could be hooked to a keyboard and monitor in another mode.  Maybe a tablet mode where you leave the phone in your pocket and hold a dumb tablet in your hand which just serves as a larger screen and touchscreen input device for your phone running Linux.  I'd love all of that, but right now the processing power just isn't there in a phone to replace PCs.

 

[Liberty]

Google Flights:

 

https://www.google.com/flights/