Thursday, April 17, 2008


It means the game is over! It is won! The steady whine of the public investor no longer has any ground to stand on.

IBM hit a home run, a financial or two walked or singled and then Google smacked the cover off the ball. Along the way, CAL was projected to lose 93 cents due to extraordinary fuel prices and it beat the estimate by 12 cents on strong revenues.

Portfolios across the land are in a state of recovery. Those who have owned Google for a couple of years have been wondering why. The fact of the matter is that the long term growth story is still intact. Indeed, the PEG ratio of Google is extremely low.

The PEG ratio is the PE ratio divided by the projected growth rate. I do not pay a great amount of attention to PEG ratios because it is extremely hard to estimate future earnings and future growth so the computation of one estimate by another estimate is always going to be a shaky number. Still, when a stock is at an extreme level, it is worth noting. The Google PEG before the grand slam home run changed the price was .78 with anything below 1 as being very attractive.

The main Google point always must be that the company has built itself a fortress. It "owns" millions of loyal customers who "pay nothing" for its services. I think Google has the most incredible business model of all time. I continue to ask if anyone can come up with another business that is able to give its services away to its customers, provide those services at a cost that is very close to zero and charge third parties sky high fees for tagging along? Microsoft can buy Yahoo if it wants but I do not see any of these guys putting Google in the back seat any time soon.

What we have not see yet is the most interesting part of the story. As I have suggested before, in the near future, owners of portable "phones" will walk into their local grocery store and their phone will immediately pull up their grocery list on the screen with an indication of which isle for each item. The list might also display competing products, the relative cost and even complementary products that might be on sale. For example, if hot dogs are on your list, the "phone" might mention the brand of chips that you like. What do you think Food Lion would pay Google for mentioning the sale on T-Bone Steaks after your phone then communicates to the register that your cart includes a few choice cuts? No more checking out here! The phone and the Food Lion computer would communicate the balance and debit the appropriate account for you.

Who knows exactly how the future will unfold? No one does, but it is clear that the infrastructure is in place, systems are ready for change and the productivity of the systems will make them very valuable to us all.