Google

Today Google’s stock price crossed above $800, sparking a bunch of headlines as to the supposed significance of the event.  But it needs to be kept in perspective.

Google went public back in 2004 for $85 per share.  When the initial public offering (IPO) happened, the stock rallied immediately and closed just over $100. It has had its ups and downs over the years, but people who bought at the IPO have made almost 10x their money in under 10 years. Not too shabby. 

Just think.  In 2004 there was no Android and there was no YouTube. And so today not only is Google still the world leader in search, but they’re also the world leader in user generated video sharing and mobile operating systems. Oh, and Google still slaughters everyone else in search.

There isn’t anything significant about the stock passing $800 except it’s a nice round number, and represents a milestone.  That’s pretty much it. Also, people who don’t understand much about investing often fall into this trap of thinking that $800 is expensive. The truth is, an $800 stock can be incredibly cheap just as a $10 stock can be totally overvalued (too expensive). Stocks represent fractional ownership in a company, so unless you understand what fraction is represented by the price, you can’t say anything about how expensive or cheap it is. 

Google’s board of directors could declare a 10-for-1 stock split if it wanted to. It would mean nothing. It would take your single Google share and slice it up into 10 smaller pieces worth $80 each. That wouldn’t change a thing. Long ago stock price mattered because it was inconvenient to buy fewer than 100 shares of anything. Not too many folks have $80,000 to invest in 100 shares. But today you could easily go buy just a single share of Google (or Apple, or any other triple-digit priced stock) at a discount broker.  Price alone means nothing.

Almost 10 years ago when Google went public, it made all its money from online ads. Today the same is true, except the business is way bigger and Google is even more dominant. 

When Google bought YouTube for $1.65 billion in 2006, most people thought the folks in Mountain View were crazy. People would ask how a bunch of idiot kids uploading crappy videos would ever help Google make money. Turns out the YouTube acquisition was a stoke of genius. Everybody uploads videos to YouTube, and the quality is getting better every day. (Harlem Shake notwithstanding.) People are turning on advertising and Google is revenue sharing with video publishers. YouTube is the No. 2 search engine in the world after Google.com

Google also bought Android in 2005.  If you don’t think YouTube was the most brilliant acquisition Google ever made, then it certainly has to be Android.  Google doesn’t make any money selling the OS, but we have to remember that Google’s product is advertising.  It’s means of selling advertising is by providing the most incredible free services on the planet.  Google.com, Gmail and YouTube are great examples.  Android is just another way to get people to use those (and other) Google services, cleverly and usefully laced with ads, on a mobile device.

Between 2010 and 2012, Google stock didn’t move much.  It was stuck in a trading range of around $500 to 600.  One of the biggest reasons for this was worry about mobile users and how they’d compress the value of an advertising click. 

Turns out Google thinks it can actually make more money from mobile clicks than it can from desktop clicks. I think it’s safe to say that Google is full of very smart people and Larry Page has been more spot-on about the growth of the Internet than most people. He wouldn’t say mobile be highly profitable if he didn’t truly believe it.

Sure enough, mobile profitability at Google is increasing steadily. On the Q3 2102 earnings call (back in October), Google told us that it is now on track to generate $8 billion per year in mobile revenue. A year earlier that figure was only $2.5 billion.  That comes, obviously, from Android users as well as iOS users (or other mobile platforms) where Google services are being consumed. Mobile is huge for Google. And it’s growing.

So here we are with Google stock over $800. I own it. I love seeing it go up. But I don’t think the ride is over. Not by a long shot.

 

Reader comments

Stock Talk: Google hits $800 a share, for what that's worth

12 Comments

I really enjoy Chris' articles. He is very good at explaining things simply and gives some insight to us that are not so stock savvy.

You get more money from stock split. Wish I bought Google last august or october when their stock dropped 60 pts to 720 would of made bank. A lot of investors don't like to invest in Technology for long periods of time and will sell in the short, it always seems people will dump Technology stock faster than any other stock in the market.

I also own a little Google stock, I was lucky enough to get involved with other investors years ago and at one point was going to dump it and must say I am very relieved I was talked into holding the course. Thank You Google.

I wish they would have split it down to reasonable share prices. I know the whole 800 thing looks cool, but if people can buy shares at a reasonable level you may get some more buyers.

Not really. Don't really see investors saying to avoid a company because their stock might split.

By the way, since they asked... it's worth $800 (on paper).