Google Redux: The Google Godzilla

I wanted to highlight a comment on my Google (Nasdaq: GOOG) post from Wednesday. Here is an expert from the comment:

"IT is a great thing that so many are now skeptical about the current PE on GOOG. Thats what makes the markets work!! Too many are looking at this all wrong way though. Many have been waiting for GOOG to drop the ball since it came public. If there is any stock that deserves a forward multiple of 60, it is GOOG, which happens to be one of, if not the, fastest growing companies in the world. … Well all who wish to own a stock at $475 on its way to the $1,000 barrier within the next 2 years, all aboard, and for all the skeptics, we'll see ya there!!"

You can find the rest of the comment here. While I'd quibble with Google deserving a 60x forward multiple, I have to agree that it does seem like many have been waiting for Google to slip up and it has thus far proved the doubters very wrong. I'd point out, though, that if Google does double in two years it would put its market cap at roughly $300 billion. Today there are only two companies with market caps above that: General Electric (NYSE: GE) and Exxon (NYSE: XOM).

Here are a few of the companies that have market caps less than $300 billion:

Microsoft (Nasdaq: MSFT) -- $292 billion
Citigroup (NYSE: C) -- $273 billion
AT&T (NYSE: T) -- $251 billion
Royal Dutch Shell (NYSE: RDS-B) -- $245 billion
Bank of America (NYSE: BAC) -- $227 billion
Procter & Gamble (NYSE: PG) -- $198 billion
Pfizer (NYSE: PFE) -- $193 billion
Wal-Mart (NYSE: WMT) -- $193 billion
Toyota (NYSE: TM) -- $192 billion

I'm not trying to say that Google can't double in two years simply because it can't/shouldn't be valued higher than these companies; it's simply food for thought.

As I mentioned in the previous post, I'm not sold on Google's business being a natural monopoly -- particularly not the way Microsoft's has been (at least its core business). Right now Google is an extremely profitable company and though this certainly warrants me tipping my hat to what they've built, I also have to acknowledge the amount of competition margins like Google's will attract.

So far, competitors (Microsoft and Yahoo! (Nasdaq: YHOO) in particularly) have had a tough time trying to take on Google, but the industry -- online advertising in general as opposed to simply search -- is still very young. Yahoo! continues to refine its strategy and Microsoft has recently underscored its interest by paying up for aQuantive (Nasdaq: AQNT).

So I'm not going to end this sounding like I'm contradicting my last post. I think that Google's current price could position investors to take part in reasonable returns over the next 3-5 years, though I'd count myself skeptical of Google hitting a double in two years. But hey, if you buy it, and it does double are you going to complain?

Disclosure: I own shares of Bank of America.

-AvgJoe