Google Passes Exxon to Become Second-Most Valuable U.S. Company | Hacker News Reader

Google Passes Exxon to Become Second-Most Valuable U.S. Company

bloomberg.com

141 pointspetethomas162 comments

I know it sounds a little ridiculous, but I think Google still has a long way to grow. I can easily see them as the first trillion dollar company and well beyond that.

I think they understand the process of re-inventing themselves better than any other tech company. They acquire a lot of companies, some of which continue to grow and change the very nature of Google itself (example Android). They also understand Black Swan Farming and practice it at a level (billions of dollars at a time) that almost no one else does.

Andy Rubin's robotics undertaking is a good example. Page wrote him a billion+ dollar blank cheque and should it succeed, it'll make Google the leading robotics company - likely alone worth as much as Google today. Should it fail, well, it's only 2% of their cash pile. They've made similar bets on almost all promising future tech - AI, clean energy, the internet of things etc.

> I can easily see them as the first trillion dollar company and well beyond that.

At least Saudi Aramco, if not some of the other state-owned oil companies, are already over $1 trillion.

In fact, Saudi Aramco's 2012 revenue[1] was greater than Microsoft's market cap (at 4th most valuable us company).

[1] http://biz.yahoo.com/ic/55/55881.html

Actually, I just did the math and Exxon's market cap is actually less than their annual revenue right now, which is about $438b.

I don't think the comparison is valid because Saudi ARAMCO is basically a state owned company with a monopoly over the natural resources of an entire country. If Google attains a trillion dollar valuation it would be amazing because they'd have achieved it due to their vision and hard work.

Agree the sky is the limit for Google's future but there's always some risk that FB or Baidu or someone could come in and take 80% of Google's users.

Aso by any reasonable measure Apple's market cap should be well over a trillion. Take away their $165 billion cash pile from their $465 billion market cap, give them 0% growth and you're left with the idea that Wall St's expects Apple to be turning out the lights in 4 or 5 years depending on how you value their IP, tangible assets and other investments. That's why Apple is buying Apple stock like whoa.

That's the thing about Apple, they have $165 billion but they have no idea what to do with it. The only R&D they seem to be able to think of is how to make their consumer boxes shinier. No moonshots, no diversification. That's why Wall Street doesn't see any huge upside.

Apple is traded cheaply to its P/E. That's true. But I think any attempt to explain that in a single sentence is certainly flawed. It's complicated. Apple is widely held. There is ENORMOUS open Options interest in the stock. Etc. There are many reasons it's not trading at its ATH's.

So I think you're wrong about your conclusion but I also think you're wrong about your premise. Product development cycles take several years. It took 3 years to follow the iPhone with the iPad -- essentially just a big iPhone and a product that they started working on before the phone. There were 6 years between iPod and iPhone. It's not like cash is the only constraint here.

I of course do believe in Apple, and I use their products, and yes I'm definitely long on their stock. And I see so many people today frustrated by their low P/E. It delights me. Every month I dollar cost average into it and the longer it stays in this "cheap" P/E range the better.

Says someone with no more insight than the rest of us on what's going on internally at Apple. Recent hires and job postings suggest that they're angling for the wearable electronics market, and I would bet they'll be years ahead of the Pebble of Galaxy Gear when they do announce something.

Would people prefer that they be like Google, with piles and piles of R&D projects that go public, get users, and are shorty abandoned? Ask me how long Google has been working on MMS support in Google Voice for. I honestly wish they'd never bought Grand Central, at least it would have improved in the last several years.

  I honestly wish they'd never bought Grand Central, 
  at least it would have improved in the last several years.

Or more likely Grand Central would have been acquired by someone else or shut down.

I was a Grand Central user and while Google Voice hasn't lived up to all my hopes and dreams it's a pretty kick-ass service.

I suppose part of my problem is that I'm using it on iOS. Still no iOS 7 update, and there are some really braindead interface decisions in the client.

My personal favorite: Text conversations get new messages from the bottom. But when you open the app, it doesn't automatically load new messages. How do you get them? Pull to refresh. At the top of the conversation.

Yup, scroll up past several pages of messages to get to the start, pull to refresh, then go back down to read the new texts. Brilliant.

The market didn't see much upside to AAPL in 2000 either. Boy was it wrong.

The big reason investors are skeptical with Apple is that there is no guarantee they can pull the same revenue without creating a hit product every two years. Once the revenue starts to shrink, things go downhill very quickly.

That's far more true of Google which has produced only one successful product under very different circumstances to the ones they now find themselves.

Google is literally unproven.

Assuming you're talking about success revenue-wise, Google has created at least three revenue-successful products: Search ads, their display ad network (i.e. display ads on different sites), and YouTube ads (i.e. display ads on their own site). (Note that this is ignoring the myriad smaller ads products they have that aren't as significant/massive revenue-wise). Calling these all "one product" is the same as saying "Apple makes revenue from only one product: sales to consumers". In fact I'd go so far as to say that these revenue streams are far more different from each other than, e.g. iPod/iPhone/iPad sales are from each other.

This is a fair perspective, although if Google can only make money from winner-takes-all properties that are monetized by advertising, their options are still severely limited, and they have not demonstrated the ability to do anything else.

The idea that revenue from Apple lines quickly fades after 2 years doesn't seem to square with history. Desktops growing for over a decade, finally fading due to laptop cannibalization. Laptops growing for over a decade, perhaps stable now and fading in the future due to tablet cannibalization. Music player grew for better part of a decade until heavily cannibalized by phone. Phone still growing 7 years after introduction. Tablets still growing 5 years in. But even if you throw their growth away and say they do 0% for next 4 years the market cap doesn't add up.

I get what you are saying. My point is that even in the same product line, e.g. phones/tablets, there is no guarantee that Apple will be able to sell the same number of iphones/ipads in a few years. Case in point:

http://en.wikipedia.org/wiki/BlackBerry_Ltd#Financials

BB was growing like crazy for the whole decade till 2011, consistently ~40% year over year both in revenue/profit AND users. Just a dink in 2012, and kaboom, you know the rest of the story. And note that enterprise email was supposed to be the unbreachable moat for a business.

This objection should presumably apply to many other tech stocks but the entire sector averages a P/E ratio of 20-30.

The first Trillion dollar company is/was PetroChina. At least for a few days.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aA1jw...

My gut agrees. But I'm still wondering what their next hit is.

Despite a million products, they're still a one-hit-wonder in terms of revenue.

A two-hit-wonder. 50% of their revenue comes from search and 50% from adsense.

Their search revenue is still advertising revenue though

Any two things can be sufficiently generalized to being describable using a single term.

No, it's simple: Google is not payed by people for search. They are payed to display ads, whether it is alongside search, or as part of AdWords.

Seriously, are you really arguing that Google's revenues are not primarily from ad revenue? With the sale of Motorola, it'll be back above 90%—just like it was before Motorola.

No one is arguing Google's revenue is mostly ads. It just doesn't mean Google is a one-hit-wonder. There are different advertisement products.

You could generalize any company that way. Apple would be a one-hit-wonder who's revenue comes from one source - selling consumer electronics.

So half from ads and the other half from ads?

This makes approximately as much sense as "Apple is a one-hit revenue wonder: almost all their revenue is from direct sales".

Apple seems to be plateauing in terms of revenue, and although google's revenue is still growing I'm wondering how long it can last. There is only so much advertising that they can squeeze out of the internet. If you look at youtube, they have been putting in more and more ads in the last year which has helped boost revenue, but now there is nowhere left to go.

As for their non-advert products: how big a market is the thermostat market, and what are the chances that Google will somehow screw up Nest? Google isn't exactly very good at customer service, and you need that for hardware.

As for these amazing robots, we've been hearing for 50 years about how robots are going to be making our lives easier at home, but it hasn't happened yet.

> how big a market is the thermostat market...

As has been expressed at various places on the web, the Nest acquisition was most likely about more than just thermostats and smoke detectors. It was probably about good consumer product design in general.

- Self driving cars - Robotics - Connected home electronics (Nest, etc.)

"in terms of revenue"

> I think they understand the process of re-inventing themselves better than any other tech company.

Google has never successfully reinvented themselves. They were founded as a search engine, and that's still what most people associate them with.

I would give the crown to Apple. Since Google was founded, Apple has been best known for the Mac, iPod, and iPhone at varying points, each product eclipsing the prior one in popularity, mindshare, and profit.

Yet it's so small:

                XOM ('12) GOOG ('13)
    Revenue     $453 B/a  $60 B/a
    Profit      $45 B/a   $13 B/a
    Market cap  $393 B    $394 B

https://en.wikipedia.org/wiki/Google

https://en.wikipedia.org/wiki/ExxonMobil

(101 for anyone who doesn't know this: revenue is how much you sell, profit is what's left over for shareholders, market cap is how much shareholders think that profit stream is worth).

Relevant: check out wikipedia's rankings of company size:

https://en.wikipedia.org/wiki/List_of_largest_companies_by_r... (and the see also)

You're neglecting growth: https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&...

One Question remaining is when Google's market value will surpass Apple's. That'll likely happen before the end of this year, so get ready for the repetition of the same HN discussion, replacing Apple with Exon.

This is a reasonable thing to point out. When valuing equities, i tend to use a strategy out of the playbook of a less famous fund manager, John Neff. That is, one that includes total return.

Indicator: Neff Ratio = (EPS growth rate + dividend yield)/PE

This is similar to the inverse of PEG, a much more common indicator, but it includes yield as part of total return. It's one of my primary screens when looking for equities, because both Exxon and Google would have good marks, even though their return would be from different sources.

Hm, applying a bit of my personal sense, I'd say Exxon's business is drying up in the foreseeable future (oil is running out, renewable energy is on the rise).

Google is a software business with very strong network effects.

I definitely see how there is more demand for software in 100 years than for oil (as a fuel).

Economics is not a pure numbers game. They [edit: the numbers] just try abstract what the companies do now and in the future.

Exxon Mobil invests more money in alternative energy research than any other organization in the world.

Exxon Mobil isn't going anywhere. As oil-usage decreases (which is still likely a long ways off), I'm sure they'll be right there to provide whatever the next energy source is.

Actually worldwide oil usage peaked in 2005 and has been gyrating around that level ever since. About half the months since then have seen decreases and half increases, so it's not a long way off. It's almost a decade ago.

Eventually heroic measures will start to fail and usage will be dropping every month for the next century as the oil fields slowly dry up.

It's not just that. Investment projects to increase oil output are having costs going through the roof :

http://online.wsj.com/news/articles/SB1000142405270230327770... (just an example)

But it's not just that EREOI in Saudi Arabian oil is projected to be at most 10 currently (down from > 30). While that's not that serious, it is decreasing exponentially and a value of < 5 would be catastrophic. Most other projects are far worse off.

(Why ? At EREOI of 10 you have to "waste" 11% of oil, up from 4% at 30. However at 5, the factor becomes 25%, at 4 it's 33%, at 3 it's 51%, at 2 it's 100%), note that current total reseve oil output is 2% at best, and minimum depletion rates are 7%.

Here's the net problem : the world will run out of oil in 6 months - 12 months. The US has a stay of execution though, but not for long : 2-3 years at most, and the US will need to implement protectionist measures to keep oil at a reasonable rate. Given what happened every other time we have a few percent drop in oil availability, I'm expecting a total stock crash and a new crisis by the end of the year.

Exxon is here to stay. This is a company that has seen 19 American presidents come and go. No other company in the world invests as much in energy R&D.

We often ridicule tech companies for having inflated valuations. I don't disagree with this in general.

In your specific comparison, which company do you genuinely think will grow more over the next N years? Google has shown the ability to dominate multiple markets time after time.

I can't see Exxon as any more than an oil company. There's certainly nothing stopping them (any more than any other business) from innovating.

The only market that Google has ever dominated profitably is search engine advertising. Despite, Glass, self driving cars, Android (free), Feedburner (dominated and shuttered) Gmail, Maps, etc... 96%[1] of their revenue is from selling ads.

I love a lot of Google products, but the only one they make any money on, is one I despise. It pays for everything else.

[1]http://venturebeat.com/2012/01/29/google-advertising/

I was thinking about it last time. And it's sad that it's 2014 and most tech companies that get tons of press and admiration make money with advertisement, something we all hate.

> something we all hate

Doubtless there are some (perhaps even many, in certain circles) who would rather pay directly for services, but you're sorely mistaken if you think that it's anywhere near-universal (even on HN/in tech) that people hate ads more than they hate paying. What you actually mean is "something we all hate, given that we feel entitled to getting services completely for free".

Yeah you're right :)

Why do you despise Google's Advertising services?

We all know what PG says the most important thing for a startup like Google is growth and that's the only thing that matters :)

I believe one reason why Google and even Apple are able to surpass Exxon is because Exxon pays out a large portion of its profit in dividends while Google and Apple retain much of theirs in bank accounts as assets. If Exxon didn't pay a dividend they'd easily be the largest company in the world with regards to market cap.

I'm not sure that is a correct line of logic. Often, companies pump their stock prices by handing over dividends. That's a sign of a mature company, which can't expect to grow much, but is still valuable to its shareholders if it can provide results in any other way.

No, if the company pays out dividends, its price ought to fall. For example if a stock is at $100, and then pays out $5 in dividends, afterward the price will be $95. The company is worth less after giving away a pile of its cash.

What's the logic behind giving out dividends then, if you don't mind me asking?

The logic is really stock price management, as I answer above. A secondary reason is simply cash management. You don't want your managers feeling rich and simply wasting money on acquisitions or otherwise splurging on themselves.

the dividends are not related to stock price- although logically, dividend paying stocks should make a stock more valuable.

Dividends are just a portion of profits paid out to public investors. Companies that don't pay dividends on C class stock still pay dividends on other classes of stock.

It falls on the next day, but over time paying out dividends makes certain kinds of company stock more attractive.

Let's run an asymptotic example and say a company has $1000 in cash and $1 per share in profits. Since most of the company is cash you can't buy shares cheaper than $1000. But you might pay say 10x profit and thus the stock price is $1010.

If the company had paid out excess cash all along, the stock price would be $10 at 10x profit, and so every $10 you invest would give you a 10% return versus a 0.099% return. So investors absolutely do not want a mature company hoarding cash.

This situation is made worse because income investors would have pushed the price perhaps higher than 10x, but instead now punish you by paying less than 10x of profit.

Thee is a certain logic there, but it's not reall the logic that drives stock prices. While it's true that the "backing" of a stock is a claim on the assets of the company in the event of dissolution, from which one could infer that distributing assets reduces the value of stock, the reality is that stock purchases are not based on valuation of the company—despite the fact that he whole idea of a market cap presumes they are—but on the expected value realized from the stock stock, which is driven by two things (1) expected payouts while holding the stock, i.e., dividends, and (2) expectations that someone else will be willing to pay more in the future for the stock (largely driven by perception that future growth or potential buyouts are not fully priced into the current market price.)

Establishing a practice of paying dividends feeds into #1 to increase the perceived value of holding the stock.

Not quite. Future profits have value, and a company paying dividends probably has good future profit prospects. So the value will be somewhere between $100 and $95, depending on expected profits and the time value of money.

The reverse is a probable case. If Exxon didn't deliver dividends and investors don't believe the company will grow, then they'd pay even less for shares. A large part of a mature's company's worth is tied to interest rates. People pile into a dividend payer because it's better than holding cash - heck they borrow cash to buy the dividend payer. So actually Exxon could be just as vulnerable to a share price fall as Apple.

Lastly, what happens if Exxon holds cash and grows a stockpile? If it's not earning money, the cash just makes a share more expensive, but the dividend as a percentage decreased. Well, the closer that percentage gets to interest rates, the less attractive the stock gets to those type of investors.

"market cap is how much shareholders think that profit stream is worth"

=> Wrong, Market Cap has little to do with what you mentioned. It is calculated by determining the total dollar market value of all of a company's outstanding shares.

Ref: http://www.investopedia.com/terms/m/marketcapitalization.asp

Actually, both definitions are essentially the same. The market consensus sets the price.

Actually, he is right.

We presume that no one owns shares of a company just for bragging rights. (This might not be 100% true.) We presume that no one owns shares of a company because they're irrational. (This is 100% false. But hey, economics has to assume something.)

People own shares of a company because they can get money for owning it. They can get money by being paid dividends, and they can get money by selling it to someone else after the price rises (or stays the same, or goes down). That other person will only pay for it based on the same thing: dividends paid plus the value of selling it to someone else.

So the total value of the company should be the current value of the company's total future dividends. We calculate it by multiplying the current price by the shares outstanding, but it's presumed to be an estimate of the future dividend stream.

How does this square with tech companies generally not paying dividends?

Well, the assumption is that the tech companies aren't paying dividends NOW because they're focused on growth. After they grow they'll pay dividends.

Theory and reality may diverge in this instance.

Dividends are not actually the only way to return money to shareholders.

Due to the tax situation in the US, it's more efficient to just buy back your own stock (something Apple's been doing a lot lately). Those function more-or-less-the-same as dividends in terms of returning the profit the company has made back to its owners (so they can invest somewhere else, presumably).

That's not so bad.

The difference in my mind is that Exxon is making money from natural resources that are not renewable and the cost for extracting oil is on the rise. If they don't reinvent themselves, they'll die. Google on the other hand is making money out of software. Software is the artifact of our own mind. So the way I see it - for companies such as Google or Apple, the sky is the limit. For Exxon, unless they reinvent themselves, there's nowhere they can go.

And btw, isn't it awesome that software/hardware companies are starting to dominate the Top 10?

And yet Apple is making Exxon type money and still has a multiple like Exxon instead of Google.

Google needs to reinvent itself too, perhaps even more & faster than XOM. The industry moves too fast for them to sit still for more than a couple years, while XOM has got decades to figure things out.

Whoopdee shit.

If Exxon and Google were both liquidated today which one would produce more cash? Google share prices reflect a speculator's premium. Exxon's better reflect the value of the underlying assets.

My thoughts exactly, but you said it so concisely.

Exxon is sitting on a resource that will soon be replaced with a more efficient one: electricity. It is much, much, much cheaper to produce electricity in coal or nuclear plants and charge cars to run on the road than it is to refine gasoline and pump it into cars.

Google is sitting on top of the most amount of information ever collected by any profit-seeking organization ever.

Skate where the pucks going man.

25 years ago, you might have said DEC was the puck.

15 years ago, Yahoo.

The ball is round, the game is 90 minutes. Everything else is just theory.

And 15 years ago you might have said Apple was overvalued. It goes both ways. But "value of the underlying assets" is a poor way to gauge a growth stock.

15 years ago Apple was a dividend paying manufacturing company. It had not been a growth stock for many years. 15 years ago the standard wisdom was AOL and Pets.com.

More efficient? Are you on drugs?

In fact electricity driving cars is so much more efficient that you could burn gas in power plants and it would still outpace crude internal combustion engines.

That's mostly the difference between large, highly efficient internal combustion engines, and the small, less efficient but extremely portable, performat, and actually-obscenely-sophisticated internal combustion engines in cars.

Electricity is simply efficient-enough of a transmission medium that it does not eat up all of the savings.

How does it make coal or atomic energy more efficient than oil? You get electricity by burning them. When you burn either coal or oil, you loose 70% of energy. Then, you loose delivering the electric power and charging the accumulators. Finally, you have losses in the electric car. You are left with at best 10% of what the coal has supplied. Oil is higly concentrated energy. It could provide you 30% of the energy it contains into kinetic energy of the vehicle.

So, which efficiency are you talking about? Is it the efficiency of warming the planet up? You are on the right track! Burning more carbon fuel is what we crucially need in our age of peak-everything!

Because you only use the explosive power of gasoline when you use it in a car and because you idle much of it away. The savings from transmission and charging do not account for the biggest waste of energy: lack of thermo use in internal combustion engines.

I speak about efficiency per unsubsidised dollar which is generally a rough correlator for usable work per input fuel.

What?

When you use liquid fuel in an engine you are taking advantage of the fact that the fuel converts into a gas quickly and thus increases the relative pressure enough to transfer momentum to the piston head which ultimately powers the drivetrain.

In an electric power plant, this is only part of the equation, the other part is that you also use the excess heat to drive a glycol or water / steam turbine system, recovering much more energy from the fuel.

This makes up for the losses of electricity in the lines. furthermore, nuclear power is by far the safest and most energy efficient source of power. Cheaper, safer, and far more environmentally friendly than a distributed gasoline delivery and combustion system.

Oil isn't only used as a motor fuel, and the pace at which it is displaced as a motor fuel is unlikely to be great enough to prevent oil companies from continuing to make increasing profits selling it.

This is a very cut-and-dry explanation that sells Exxon's future value (and our reliance on petroleum products) way short.

Production of electricity is more efficient than production and refinement of fossil fuels. BUT, Expenditure and distribution of that energy as electricity is less efficient for use as a transportation fuel (as I understand it; correct me if I'm wrong!). This is particularly true for heavy-load transportation like 18-wheelers and industrial applications. Until battery and electric motor technology improves to provide more torque for longer periods of time, fossil fuel will be responsible for moving our STUFF around via diesel motors. The moving of that STUFF still represents the majority of our transportation fuel burned.

Exxon is also a very large investor in electric vehicle battery tech, which will be one of the key technologies to change our transportation reliance from fossil to renewable.

Also don't forget about plastics as a petroleum product; I think it will be some time before we replace plastics as a common building material.

Granted, Exxon only spends ~3% of their profits on research of any sort, which is probably less than their advertising budget, and they spend less in a year on R&D than Google does in a quarter.

I don't really mean to start an argument, and I do hear your point. Exxon is the leader in a dying business. Still, Exxon isn't ignoring the puck. They're probably as aware as anyone where the short-comings of fossil fuel transportation start and stop, and they are as interested as anyone in technology that will upend that industry.

It is more efficient to generate power in a power plant, transmit the energy, then drive a car with it.

This is especially true when you take into account cheaper electricity at night, and regenerative breaking.

The expensive part right now is the upfront cost of lightweight batteries, and the small economics of scale.

But battery technology is continuously improving, so is economics of scale, and electricity production from non-fossil fuel sources.

I'm not saying Exxon is dead, I'm just saying that it is insane to ignore what is right in front of us. If gasoline doubles in price once more (in real terms) then the internal combustion engine is over.

>If Exxon and Google were both liquidated today

Well, that's exactly it, isn't it? Google has more potential for the future than Exxon.

By all means sell Google and buy Exxon. Check back with us in 10 years about how that went.

> Exxon's better reflect the value of the underlying assets.

That's like valuing a car based on the price of the steel it contains instead of where it can take you.

> By all means sell Google and buy Exxon. Check back with us in 10 years about how that went.

I am actually going to try to track this (and I don't mean that in a bad way). I am honestly curious about this over the next 10 years.

You don't really have to track it. Just set a google calendar event for 10 years from now, and look back at the stock history then.

If somehow google services go away and you don't get that event reminder, the question may be moot by then... not really, but an interesting thought anyways.

    By all means sell Google and buy Exxon. Check back with
    us in 10 years about how that went.

Note that the expected growth of Google relative to Exxon is already priced into their market caps.

Assessing future value is the point of the stock market, isn't it?

I have to say I don't understand companies that have very little in the way of tangible assets being valued higher than companies that have mounds of tangible assets.

For instance, Exxon-Mobil has $347 billion in tangible assets while most of Google's value comes from its brain trust and the vision of its leadership. The same could be said of Apple though they do have $40 billion in cash.

In other words, if both companies were offered to you at half of their current valuations and you didn't know how to run either company, Exxon-Mobil would be worth many times more to you just from being able to liquidate the assets.

I realize the market cap is based on more than that but I guess I'm wondering why tangible assets don't play an even bigger role in valuations.

EDIT: AAPL doesn't have as much cash as I thought.

Google also has a pile of cash. And a fiber optic network. And millions of square feet of data center space.

Exxon: Assets: $350bn Liabilities: $75bn

Apple: Assets: $225bn Liabilities: $53bn

Google: Assets: $110bn Liabilities: $15bn

If you're trying to value a stock on fundamentals alone, you should take these tangible assets (as you call them), back them out of the market cap. Then look at what kind of P/E multiple you're getting. And compare that to other companies in the industry.

The big difference here is in growth rates. Google is priced for growth. And certainly you can imagine Google growing much faster over the next decade than Exxon.

It's sickening to see all these cash rich tech companies being worshipped, yet they don't pay their employees what they're worth, for generating all that value.

http://pando.com/2014/01/23/the-techtopus-how-silicon-valley...

I can also envision Google being targeted by regulators and tax agencies and law makers around the globe in the next ten years. In addition their business model is vulnerable as open access networking becomes less advantageous to more businesses and it becomes increasingly feasible to inject advertising locally or strip off Google's customer's ads and replace them at the ISP level.

If Google disappeared this weekend, we'd wake up Monday morning and our Android phones would still work, a few people would miss Play and the worst part would be listening to people complain about Bing search and everyone else's maps.

If Exxon disappeared I'd be in line at the pump filling up gas cans in addition to the tank and on my way to stockpile canned goods, potable water. and buckshot.

This is exactly how we should value companies. Depending on the chaos it would cause if they disappeared tomorrow.

With your reasoning, for example, the private prison companies would be valued incorrectly high (as do the companies that make the green lights for traffic intersections, the doors to stores, the electric power company, the wireless/phone/cable company, any company with any kind of monopoly, etc). What you're forgetting is to weigh for the difficulty to replace the company with another (that in some cases may already exist and only needs to move into the now vacant market).

I was being sarcastic. It's really hard to do that on the internet.

If phones still work then it's only fair to say that the pumps, stations, etc still work and someone would take it over and provide the same services, disruption would be fairly short term.

This is a pretty bad analogy, and even at that, it's not completely thought through. Google is responsible for a lot of the infrastructure on the modern web. Gmail, ad networks, google apps, data centers, etc... If they disappeared this weekend it would be chaos.

If exxon mobile disappeared, we might see an oil shock similar to the one in the 1970's, but more likely, due to strategic reserves, we would see a gradual increase in prices, followed by a ton of investment into increasing production capacity by the other oil companies.

If Exxon disappeared, I'd ... go to a different gas station.

appl had ~$160B in cash as of their earning report last week: http://www.bloomberg.com/news/2014-01-28/apple-s-160-billion...

The total of the Cash + Short Term Investments + Long Term Investments is $158 billion+.

I'm not sure if this is the same as cash but it may be.

Undoubtedly, people will soon scream 'Bubble!', but I believe this is part of the inevitable shift of technology becoming the driver of the world's economy.

I doubt this actually. Google is a much more visible part of everyone's daily life than Exxon. If Google were more valuable than the sum of the entire petroleum industry, then we would have a problem, but as it stands, demand for Google's goods and services is much more inelastic, and relatively more valuable, than Exxon's contributions alone.

Then again, people will call anything a bubble. But its easy to see that this is not evidence of it by asking yourself if we'd be worse off if Google disappeared tomorrow vs if Exxon did.

Google's value vis-à-vis Exxon reflects Google having a lightly regulated de facto monopoly on search in most internet connected countries, while Exxon is in a fragmented, heavily regulated industry. Technology becoming the driver of the world economy would involve it (<10%) [1] passing industry (31%) [2] in its contribution to GDP.

[1] http://www.econstats.com/wdi/wdiv_533.htm

[2] https://www.cia.gov/library/publications/the-world-factbook/...

> while Exxon is in a fragmented, heavily regulated industry

You seem to imply the assumption that the regulations in the energy industry don't benefit ExxonMobil.

If you have examples of that I'd be interested in hearing them. Otherwise the refutation is not really useful.

Exxon has run, on average, an 8.6% margin over the last 4 years (FY 2010-2013) [1]. Google runs at double that. This implies (though does not prove) that Google has more leverage in its market than does Exxon.

Do some government policies benefit Exxon? Likely. Does every government tax and regulate Exxon at the maximally efficient rate? No. But that is a far cry from saying Exxon would be worse off if, globally, resource-related regulation was pared back.

[1] https://www.google.com/finance?q=NYSE%3AXOM&fstype=ii&ei=QDv...

Wikipedia lists the characteristics of a monopoly here:

http://en.wikipedia.org/wiki/Monopoly#Characteristics

Which of those characteristics do you see in Google?

Single seller - Google commands 2/3 of search engine volume [1] and 1/3 of online advertising [2]. Yes, they have competition, but in several verticals they are the only practical choice. Note that this does not make them an abusive monopoly, which is what those characteristics seem to be describing more than a monopoly per se.

[1] http://searchenginewatch.com/article/2289560/Googles-Search-...

[2] http://www.bloomberg.com/news/2013-06-13/google-is-projected...

In which verticals is Google the only practical choice?

Search engine marketing, for one.

But not search, like the original comment claimed?

... I'm actually surprised it's only 2/3. I mean, there are fringe geeks on DuckDuckGo, and IE Windows default search is Bing, but still I've never seen anybody IRL actually open anything but Google for a web search.

The Chinese use Baidu, the Japanese use Yahoo, the Russians use Yandex etc.

The more accurate list is the "Sources of Monopoly Power":

  * Economies of scale
  * Capital requirements
  * Technological superiority
  * Network externalities

All of these apply to Google, to some extent or another.

Physical strength is one source of bullying power. Would you say that anyone who is strong is a likely bully?

I think you are conflating a monopoly with the abuse of such.

Every bubble comes with people who claim a technological shift or other fundamental shift has occurred.

Instead, look at it analyitcally; A P/E of 30ish means that people think Google could grow 3X. Seems reasonable.

A P/E of 30ish means that people think Google could grow 3X. Seems reasonable.

I'm on the fence. I think Google is doing amazing things and there is enormous potential. However, we're also talking about huge numbers. Annual revenue is already $60B. To go to $180B at the same margins they need huge successes. Like having self driving cars turn into a $60B/year business. Is that possible? Yes. But when you start to think about how huge the numbers are you see that its not easy.

Its hard to escape the arithmetic of the law of large numbers.

Software truly is eating the world and this is an example of that.

I prefer to live in a world where tech companies are our highest valued, not oil companies.

These companies make the bulk of their money from consumer technology. Are you saying you value more consumer technology than energy?

The tech companies would not exist for very long without those oil companies.

The oil does not go into gadgets. All the oil goes into your car, http://www.youtube.com/watch?v=rPS1y81b1Bw

1. Gadgets are made of plastic is made of oil.

2. Transportation is critical to you receiving the gadget that you hold in your hand.

Not it doesn't all go into your car.

It goes into manufacturing. It goes into farming, fertilizers are often oil based. It goes into the chemical industry. It also goes into generating power for electricity. How do you think the gadgets manufactured in China gets to the US? On ships powered by oil. When you fly on a plane, what do you think powers those engines?

> It goes into manufacturing.

That is a good manipulation. I do not think that this is a joke becaus you must know that the major manufacturer is the China yet the major oil conumers are Europe and US, http://en.wikipedia.org/wiki/List_of_countries_by_oil_consum.... The consumers consume 15 times more oil per capita than average chaneese (and 3 times more in absolute figures). So, you do not need the oil to produce. You need it to consume.

> It goes into farming, fertilizers are often oil based.

This manipulation is even better. Look at the figures, and try to find the microscope to localize your fertilizers, http://www.thedailygreen.com/environmental-news/latest/oil-i.... You will start informing in only after finish that, ok?

How can you respond such things on the video that I have linked? The western lifestyle assumes that you free-ride a car and live in the suburb. You need a suburb to free-ride a car. This is where all oil goes into. If you rebuild your city into sustainable one, as suggested, http://www.youtube.com/watch?v=ugv0OY6LyuE, you can reduce your oil consumption tens of times. This would cut not only gasoline but also all other expenditures, including car building (this is a major job in the industry, accroding to the 2008 crisis) road building, lighting, other communications and water pipelines, and even home heating, http://sustainability.stackexchange.com/a/2398/476 correspondingly. So, all the resources are consumed by car. The gadgets are orders of magnitude chaper for the environment and do not need the costly subrubs to exist.

The planes are of the same kind. They are a part of your american car lifestyle. They are a stupid waste of the oil when there is a train that is 1000 times more energy efficient (and does not need any oil), once you have a railroad.

So, I am saying that there is no way you can sustain your car. But, the micro-electronics is the tip of the human civilizaiton and you have a choice: either you give up the car right now and keep developing the high-tech or keep driving the car and loose both after 20 years (or may be sooner). If the latter happens, the civilization will never recover since there is won't be any oil in the world anymore.

This is what I say. But, instead of listening that great insight, you feel necessary to support your catastrophic way of life, where you are going to loose everything.

Wow.

So you watch a YouTube video and thinks you know everything about oil.

Try reading Yergin's "The Prize", which won the Pulitzer Prize award.

http://www.amazon.com/Prize-Epic-Quest-Money-Power-ebook/dp/...

and also try reading the Quest by him as well.

"That is a good manipulation. I do not think that this is a joke becaus you must know that the major manufacturer is the China yet the major oil conumers are Europe and US, http://en.wikipedia.org/wiki/List_of_countries_by_oil_consum.... The consumers consume 15 times more oil per capita than average chaneese (and 3 times more in absolute figures). So, you do not need the oil to produce. You need it to consume."

You're the one doing "manipulation". You made the bold statement that "ALL" of it goes into cars and I point out to you that not "ALL" of it goes into vehicle, which is backed up by the link you cited. http://www.thedailygreen.com/environmental-news/latest/oil-i... . Do you realize that your link actually supports my claims?

I can stop here because either you don't understand the meaning of "all" or have some kind of weird grudge against the western world.

Wow you reading Yergin's "The Prize", which won the Pulitzer Prize award and think that you know everything about the oil. You is actually an idiot. I can recommed you Jarred Diamond, http://en.wikipedia.org/wiki/Collapse:_How_Societies_Choose_... who also had his, how do you call it, the Pulitzer prize. This proves everything. Keep denying the obvious. This was proven useful.

> You're the one doing "manipulation". You made the bold statement that "ALL"

You is imbicillic criminal, not able to understand the message, after I chewed how ALL is consumed by cars? I have told you not to approach me before you figure out the %% of oil "spent on the fertilizer".

A good amount of the oil does go into gadgets. Energy, plastics, Amazon shipments, etc. In the U.S. natural gas is also the 2nd-largest fuel source for electricity generation (~30%, 2nd to coal at ~35%).

> A good amount of the oil does go into gadgets.

http://www.thedailygreen.com/cm/thedailygreen/images/product...

90% is fuel. Thanks for making me an idiot. You should add that burning that oil in your car helps the gandgets to sustain. You afford much more gadgets to yourself, once the car finishes burning all your oil. Right?

Gadgets are made of plastic.. which is made of oil.

We would not live in our current modern age without oil. Moreover, the oil companies are tech companies and have been since before the phrase was coined. What do you think Exxon's R&D budget is for? Exxon has over 1,000 PhDs on staff.

Also, when you refine oil, not everything that comes out is gasoline. Those byproducts are a major component of consumer electronics (plastics). The entirety of a barrel of oil most certainly does not wind up in a car.

> We would not live in our current modern age without oil

really? Do you mean that I am an idiot who does not undestand this?

> Exxon has over 1,000 PhDs on staff.

Really? Can I prove that 1+1 = 3 based on that?

Look around your room. If you don't have any food lying there, everything you see is made of oil. The carpet on the floor, is manufactured using oil, and the paint, the only part you really see is oil. Same for walls. Every gadget you see has a plastic shell, made from oil. LCDs have lots of components, the majority made from oil. If you look at a TV, all you see is oil. Synthetic fabrics are made from oil, and everything we wear is at least 10% synthetic, more likely 80-90%, and again, the paint used is going to just be oil. Laptops are near 100% oil (the entire shell + the lcd is, so all visible parts are).

Even in microchips. Everything but the actual silicon and contact pins is oil. The casing, the print, the holder, the cooler, ...

The only exceptions I see in my room is the glass of the window (made from silicon and production energy comes from coal), and a glass. Oh, and some leftover spaghetti.

Oil companies were the tech companies of their days. We take them for granted now but oil is what enabled mass industrialization and freed up labor everywhere from manufacturing to farming. Oil has disrupted more industries than you realize and has had a profound impact on human history.

Can someone explain to me why the market is being so bubbly about google (yes, pun intended)? I'm just not seeing over $1000 being the long, even for google.

They're sitting on a huge pile of cash. Back that out and look at their forward P/E. It's reasonable.

There is no reason Google shouldn't be over $1k. Except that 4 digit numbers feel big. Which is probably one reason they're doing a split.

The thing I wish to see them focus on the most is making Google Fiber everywhere. I wish they would take their ISP division more seriously.

Considering Kansas launched in September 2012 [1] that gives them a year and a half of service. They've already announced Austin and Utah (Utah starting service soon ~Feb 20 [2]). They are having to build new infrastructure to the "fiber hoods" which takes a lot of capital and time. Let alone massive political fights from the current ISPs that are sure to take months of time. I'm not sure how they could be more serious about it?

[1] - http://en.wikipedia.org/wiki/Google_Fiber [2] - https://fiber.google.com/cities/provo/

Pure speculation, given that Google hasn't launched a single successful product* since their IPO.

*giving things away for free doesn't mean they are a success

Play is expected to be a $3.2 billion a year business in 2014. Where do you set the bar for "a successful product"? $5B/yr? Also I'm not sure if you're also excluding acquisitions from your arbitrary definition, but all the DoubleClick products (DFA/DFP/AdX) were post-IPO and are not even close to the same product as AdSense. Don't mistake "I don't understand what I'm talking about" with "anything that has the letters 'ad' in it must be the same product".

Ok - but accepting this perspective, all validated growth has been growth in advertising. Does the P/E ratio reflect expectations for the further growth of the ad business, or is it speculation that Google can be successful in creating another type of business for which there is no antecedent?

is it still a good idea to buy google stock?

I might be wrong, but it certainly seems overvalued.

Do you believe Google will be a more valuable business in the future than they are today? I sure do. And i don't have any reason to believe the market has "priced in" the value of Google's future growth.

Dollar cost average into it, and be a buy-and-hold investor, and it's hard to go wrong.

    I don't have any reason to believe the market has "priced
    in" the value of Google's future growth

Why don't you think people deciding how much to pay for Google stock are considering Google's expected growth? Google's market cap is similar to Exxon's with far lower revenue and much lower profit.

    Dollar cost average into it, and be a buy-and-hold
    investor, and it's hard to go wrong.

It's not hard at all to go wrong that way: investing in only one stock is unnecessarily risky. If you're picking individual stocks you should be asking "what's my edge?" or "what do I know that other smart informed people don't?" Sure, you see lots of potential for growth at Google; so does everyone else, that's not going to make you any money. Unless you're better informed in a useful way it's much better to just buy a slice of the market with index funds.

Of course the people buying Google stock are considering expected growth. (Though I wouldn't call market dynamics "deciding." You humanized that in an interesting way.). But I don't think all future growth is priced-in to the stock. Nor should it be. The question is, do you think there is upside, can your investment grow as the company grows.

I've always been fascinated by the people who prescribe index funds to everybody as the only right play. Of course I own index funds. Over half my total portfolio is in tax favored retirement accounts and all of that is in low-cost index funds. But if you have more tolerance for risk and a desire to personally manage your money, investing smartly and holding for the long term is a perfectly reasonable and often profitable strategy.

I stand by what I've said. There is no reason for me to believe that long-term value in Google will not be returned to share holders. There is certainly an amount of risk here. But buy-and-hold is a solid strategy IMHO.

To answer your general question:

http://arachnoid.com/equities_myths

But specifically, by the time a company is widely regarded as successful, noteworthy, at the top of its game, the train has left the station. By contrast, Warren Buffett would invest in a "company" consisting of a couple of guys in a garage with a vision for the future.

> By contrast, Warren Buffett would invest in a "company" consisting of a couple of guys in a garage with a vision for the future.

I think you meant would NOT invest in that scenario. Warren invests in

- companies with strong reoccurring revenues

- strong moats around them to protect them from competitors

- companies that are the number one or two in their chosen fields

two guys in a garage with a vision of the future is sadly missing all of these things. That's a very unlikely scenario for Warren Buffet to invest in.

Buffett is best known for investing in companies that are undervalued. If he simply invested as you describe, he would be lost in a crowd of investors who use the same criteria.

Also it's important to say that some investors are going to succeed by chance, not design, and there cannot be a consistent winning equities investment formula or method. More here:

http://arachnoid.com/equities_myths

By that analysis, Google "left the station" in what, 2005? Microsoft left the station in the late 80s. Apple left the station in 2005?

And to the contrast, Warren Buffer invests in things like Conoco, WellsFargo, and, humorously, Exxon.

Small doesn't mean growing. Large doesn't mean shrinking. Any analysis that assumes either is simply flawed. Buffet looks for companies with good fundamentals and returns, whether they're two guys (though I've never, ever heard of him doing such a speculative investment. That seems entirely contrary to his philosophy) or 200,000 people.

Google currently makes most of their money in advertising. Anyone paying attention knows that they're working really hard at expanding out from that, and in a few short quarters their non-advertising revenue exploded to 10% of their total (it sounds small, but 10% of a huge number is a huge number), with an incredible growth rate. If they start successfully leveraging their smarts and technology, they truly can be a trillion dollar company.

The same is true of Apple. They've coasted on the iPad/iPhone train for a while -- a very enriching coast -- but if they apply their designs and intellect to other industries, the impact can be absolutely enormous.

> By that analysis, Google "left the station" in what, 2005?

By that analysis, Google has most likely experienced the majority of its growth, and its current price reflects not only its actual value but the psychology of investors who try to buy into companies that are already successful, expecting that future returns will reflect past performance (the single most common investor mistake).

> Buffet looks for companies with good fundamentals and returns ...

No, he looks for companies that are undervalued.

http://www.investopedia.com/terms/u/undervalued.asp

Quote: "Buying stocks when they are undervalued is a key component of mogul Warren Buffett's value investing strategy."

> Small doesn't mean growing. Large doesn't mean shrinking. Any analysis that assumes either is simply flawed.

Then it's a good thing I never made these claims -- they're yours, not mine.

EDIT: Given that lutusp is bizarrely distancing themselves from their own claims (or rather holding their comments as ever mutable and ethereal all-encompassing statements that mean everything yet mean nothing), this thread is futile.

>> Google has most likely experienced the majority of its growth

> That does not follow.

Qualified opinions don't need to follow logically. If I had wanted to make a testable claim about a deterministic outcome, surely I would have avoided saying "most likely". Imagine an airline pilot saying, "Folks, we'll most likely land safely today".

> You're stating completely subjective things and presenting them as fact.

Prove it. Did I assert my claim as fact, or did I say "most likely"? Which of these common English words is causing you the most confusion? Locate my use of the word "fact" or any of its synonyms.

> If you think you can call the market by the "it has grown, therefore it will fall" ...

That is not a claim I made, that is a claim you made. I don't have to defend it, you do. The burden of evidence is yours.

In short, you need to find someone else to have your non-debate with, someone else for whom you can invent their position, then argue against it.

> EDIT: Given that lutusp is bizarrely distancing themselves from their own claims (or rather holding their comments as ever mutable and ethereal all-encompassing statements that mean everything yet mean nothing), this thread is futile.

Sincerely, get professional help. As things stand, people who reply to your posts might be temporarily misled into thinking they're communicating with someone who recognizes the existence of people other than himself.

It'd be #1 inside of a year if it implemented open allocation.

Highest valued == Most Valuable ?

Yes but Exxon doesn't pay taxes.

Exxon’s filings with the Securities and Exchange Commission, says the corporation didn’t pay any federal income tax in 2009

So Google was always more valuable to the US.

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