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Google IPO

Of course, everyone knows that Google is going to make an initial public offering (IPO) of its stock. This is big news both in the finance sector and in the tech sector, so naturally I would tend to have some interest in it. I've gotten an bidder's ID number, from their website , and maybe I'll make a bid on a share or two.

They claimed that the share price will be between $108 and $135, thus claiming that their company is worth up to $36.25 billion dollars. Given their 2004 net income (year ending June 30) of $143 million, that leads to a (trailing) P/E ratio of 253. (Assuming that I calculated P/E correctly, which is not necessarily true. I used their net income, and the total number of common stock outstanding.) This can be compared to Yahoo's P/E of 175 (according to my calculation, which I think may be wrong, because the Yahoo website claimed 121), or the S&P average P/E of about 30. So it looks like Google is somewhat expensive.

Is it worth the expense? I've always been a fan of Google. It is certainly an integral part of the web, right now. They will face competition from Microsoft, in the search sector. (That said, Yahoo has to do the same, and they are still rewarded with a high P/E. I judge Google as more important to the web than Yahoo.) Google knows the web like nobody else, and finds innovative ways of using it. An interesting bit of speculative fiction can be found in Paul Ford's story, which shows how Google could leverage this understanding of the web in an interesting way. (It also is a good introduction to the Semantic Web, which will play a role in our lives someday.)



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