Through The Fly's Eyes: Google

from Larry Ramer of Theflyonthewall.com

Google $2,000 May Not be a Pipe Dream

Former analyst Henry Blodget is being ridiculed in some quarters for suggesting that Google's (GOOG) stock -- in two or three decades -- could reach $2,000 per share.

It's certainly not easy to predict what might happen 20 or 30 years from now. It's entirely possible, for example, that some sort of technology will come along and replace the Internet, leaving Google's search engine obsolete. Internet Protocol Television, or IPTV, already does look like it may be poised to steal a bit of the Internet's thunder.

But, if we assume that there will be no radical changes in technology or consumer tastes by 2030 or so, there do seem to be some factors supporting the plausibility of Blodget's theory. For one thing, Internet advertising is still growing 15%-20% annually, and there doesn't seem to be any end in site. Every year, retailers take more money from newspaper and radio ad budgets and plough it into the Internet. If this trend continues and Google can retain its position as the top beneficiary of increased Internet ad spending, the company's revenues and cash flows are guaranteed to keep growing at high rates.

New applications on the Internet continue to sprout up and draw in people for longer periods. Many more people are watching TV on the Internet. Social networking blogs are a relatively new phenomenon drawing in young people in gigantic numbers. As the Internet draws in people for longer periods of time, advertisers will want to continue to spend more of their advertising budgets on the Internet. As the owner of the most popular Internet search engine and the most popular Internet display advertising company (DoubleClick), Google is very well-positioned to keep capturing a big share of the world's ever-expanding Internet advertising expenditures.

Information Week columnist Stephen Wellman, in a retort to Blodget, notes that some people in the mid-1990s thought Microsoft (MSFT) would continue growing at its peak rates. Those predictions failed to pan out, says Wellman, concluding that "all companies, no matter how powerful they are at their apex, stop growing at their peak rates."

But Microsoft could have kept growing at its peak rates. It really just made a bad bet, by trying to develop a variety of Internet services, including a browser, email service, content, and instant messaging, instead of concentrating on developing a simple, efficient search engine supported by advertising revenue, as Google did. If Microsoft had taken Google's approach, it could have kept growing at its peak rates. And in the last decade, Microsoft just hasn't entered any rapidly growing new markets with any new, exciting, widely accepted products. The reduction in Microsoft's growth rate certainly wasn't as natural as death and taxes, which is what Welman seems to suggest.

It seems that Google, by contrast, is either entering or is about to enter several new, rapidly expanding markets with products and services that have a chance to make a big splash. YouTube has become a huge franchise, and Google is beginning to exploit it by running paid video ads on the site. Google is developing advertising technologies for the wireless Internet, which seems as though it's about to explode. The company seems poised to become as dominant in wireless Internet advertising as it is on traditional Internet advertising. And, if the company can bring out the rumored gphone soon, it can capitalize on the trend towards smart phones. If Google can introduce a good, reasonably priced smart phone, it can certainly take substantial market share away from Apple (AAPL) and AT&T's (T) iPhone.

Stranger things have certainly happened than Google $2,000 in two or three decades.