Google’s market capitalization makes it worth more than the rest of the Big Web combined! Here are some rough calculations and ball-park figures:
SUMMARY
| Company |
Revenue ($B) |
Earnings ($B) |
P/E |
Market Cap ($B) |
|
14.0 |
4.00 |
54 |
216 |
|
|
|
|
|
|
|
| eBay |
7.6 |
0.14 |
366 |
50 |
| Yahoo |
5.1 |
0.67 |
61 |
42 |
| Amazon |
14.5 |
0.36 |
102 |
37 |
| MySpace |
0.6 |
0.12 |
133 |
16 |
|
0.2 |
0.05 |
319 |
15 |
|
| Microsoft Online |
0.9 |
-1.0 |
∞ |
10 |
| SubTotal |
28.9 |
<0.34 |
>500
|
170 |
BREAKDOWN
- $14.0b revenue (extrapolated)
- $4b earnings
- $216b market capitalization
- P/E ratio of 54x
eBay
- $7.6b revenue
- $137m earnings
- $50b market capitalization
- P/E ratio of 366x
Yahoo
- $5.1b revenue
- $670m earnings
- $42b market capitalization
- P/E ratio of 61x
Amazon
- $14.5b revenue
- $363m earnings
- $37b market capitalization
- P/E ratio of 102x
MySpace
- $600m revenue
- $120m earnings (extrapolated)
- $12-20b market capitalization analyst estimates (median $16b)
- P/E ratio of 133
- $150m revenue
- $47m earnings
- $15b market capitalization analyst estimates
- P/E ratio of 319
Microsoft Online Division
- $668m revenue – $239 losses (per 6/mo) = $429/6mo
- $858m revenue (extrapolated)
- $-1b earnings (extrapolated)
- $10b market capitalization analyst estimates
- P/E ratio of ∞
CONCLUSION
Is Google really worth more than all the rest of the Web giants? If you look at the numbers above, you can see that Google is able to keep their earning power high in proportion to their revenue. This shows that Google is operating at an extremely, high-efficiency. Earnings are what matter and Google is making real money. Google has no debt, over $13b in cash and marketable securities, and total assets worth over $23b. This isn’t just pie-in-the-sky valuation, they are for real.
In addition, while Google’s P/E ratio is high it is still lower than the rest of the group (many of which are in the stratosphere). Even if you take out the money-losing Microsoft Online from the list above, the average P/E ratio for the group would still be greater than 119. To put this in perspective, if these companies had, instead, the same Google P/E ratio of 54x, their adjusted market capitalizations would be:
- eBay $7.5b
- Yahoo $36.1b
- Amazon $19.4b
- MySpace $6.5b
- Facebook $2.5b?
Currently, it looks as if Yahoo is firmly in second-place behind Google. However, MySpace and Facebook valuations are difficult to quantify due to rapidly expanding revenue streams and improving efficiencies. Facebook, in particular, may move up quickly in the list, as they recently launched their social advertising platform, which will compete directly with Google AdWords and AdSense. However, with current valuations, Facebook is priced high in the ionosphere.
By indexing the Web, and everything else, Google has put itself in a good position. Are they really worth more than all the other big player combined? Right now, in my opinion, the answer is definitely “yes.” What do you think?
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#1 by Nicholas Tomczek on October 30, 2007 - 2:25 pm
Jesse,
Great information!
This is a huge debate right now. Its nice to see some financial calculations to make some rough comparisons between theses companies.
#2 by Junaid Ahmed on October 30, 2007 - 5:21 pm
Good information but the total revenue that Amazon has is just a bit more than Google. And the total revenue from all of the companies is more than twice the total of what Google makes, but it’ll change overtime, surely
#3 by Jesse Chan on October 30, 2007 - 5:26 pm
Junaid,
Thanks for the comment. You are correct, Amazon’s revenue is higher than Google’s; however, they aren’t earning as much money as Google. In other words, Amazon makes a lot of sales, but ends up with a relatively, small net income. Google, on the other hand, makes more net income on less revenue (note that revenue is also increasing rapidly). This, ultimately, means high, operating efficiency.
You can have huge revenue, but poor earnings. See the Microsoft Online division in this article. They have $0.9b in revenue and earnings of $-1.0b. So a net loss of $0.1b. So, while revenues and sales can be big, it doesn’t always mean a lot by itself, you also need to earn money.
Google’s earnings are greater than all the rest of the companies combined.
#4 by vizualgraphix on October 31, 2007 - 8:32 am
Excellent article Jesse! This really puts things into perspective. Google isn’t going anywhere (but up), so other competing companies have to go back to the drawing table to figure out how to make their companies more efficient, thus increasing their earnings, or net income. Thanks for the comparison…it’s easier to understand and get a grasp of the big picture with visual information
#5 by happy on November 1, 2007 - 6:40 pm
Google is sure to be a winner with no debt and a lot of cash!
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#6 by Dima on November 7, 2007 - 8:46 pm
I wonder though, what makes all these companies comparable apart from the fact that they all operate online? What do we actually learn from it? As the platforms and technological solutions converge it is harder to distinguish, but still. Is the nature of business of Amazon the same as that of Google? Shouldn’t it be compared to B&N or Borders for example? Is amazon a competitor for Google? It seems to me that Google derives its revenue from the same pool as FB, MySpace, and Yahoo – advertising. So there is some basis for comparison. Or am i wondering in a totally wrong direction?
#7 by Jesse Chan on November 7, 2007 - 9:08 pm
Dima,
Excellent question. Amazon and eBay are centered around retail and auctions — otherwise known as merchandising. They both set optimized price points using online algorithms. Amazon has features such as “customers who bought this item also bought this.” They tailor the purchasing experience, in an automated fashion, to the customer. In addition, they have other platforms that extend beyond merchandising. I mention some of Amazon and eBay’s platforms in another article:
http://fishtrain.com/2007/10/17/the-platform-is-what-matters/
Amazon does compete with Google with their cloud computing platform, their affiliate program might also be a point of contention. In fact, Amazon has even launched their own search engine called A9, but it’s not significant at this point. eBay also competes with Google with PayPal and Skype, in addition to their affiliate program.
B&N and Borders, are still old media selling their retail items online. They don’t seem to have fancy algorithms at the moment or significant web services. However, you are correct that this may become blurred in the future. But currently this is a major point of differentiation.
Hope that helps to clarify why Amazon and eBay belong in this group even though they don’t make all the majority of their money in advertising. They are part of the Big Web. Another player that might also be included in this list is IAC. . . .
Your thought is intriguing. As more companies do business online, what are the differences between online and offline business? It may become increasingly blurred, just like the difference between desktop and web applications are becoming indistinguishable.
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#8 by Harshavardhan on February 5, 2008 - 1:45 am
Microsoft and Yahoo could lure more people to search through their engines to refine the search. That can be done by paying users to search through their search engines… (a one cent per search) That would significantly jump up the figures and Google would be forced to follow suit? What then?
#9 by Jesse Chan on February 5, 2008 - 1:49 am
#12 – How does that make Microsoft or Yahoo more money? How do users search thru their search engines? Aren’t the search engines suppose to search for the user? How does this threaten Google?
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