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Monday, July 11, 2011

Testing Out the +1 BUTTON

While I've been bearish on virtually all of the recent social (i.e. overvalued) IPOs, I think GOOG+ is awesome and could actually be the catalyst that changes investor's perception of the stock. The company holds a dominant position in search, prints money, has $115 in cash, has a ton of smart nerds, yet the market doesn't care. The thing trades at a market multiple (closed today at 14.4x NTM PE) despite vastly better growth prospects and margins. Yes it's friggin huge and you can't give a company of that size a major growth multiple, but I think the current multiple is overly compressed. Anyway, GOOG+ just launched and I know my friends (the more tech savvy ones at least) are really embracing it. Circles are an amazing concept, and give you so much more control on who sees your content. As a result, I am much more likely to actually post and interact on the site, because while I obviously think everything I write is awesome and interesting, I know it only resonates with a segment of my group of "friends". Therefore, I only post stuff on $FBOOK that I think all 760 (sell-call!) of my friends will be interested. On G+ however, I have created different circles (work, high school guy friends, etc) and can post things that are relevant to them, and not have to worry about spamming the other 755 that would find my link about Star Wars dumb.

Anyway, it's hard to move the needle that much on a company like $GOOG with a $170bn market cap, but I think a successful launch of GOOG+ (which all signs are pointing to currently) could get some people a bit happier with Google's high opex #s, and allow them to see a glimmer of light at the end of the tunnel (i.e. a material revenue stream that is not their core search biz, which currently is >90% of revs).

Crude Comparable Valuation assuming 200mm (active gmail base) convert to GOOG+ :

Can justify a value of $70/share based purely on SOTP from converting gmail users. As the stock trades at around $525, this is only 15% of incremental value. Nothing to sneeze at certainly, but also not a completely trans formative business shift a la $TZOO for instance. The main upside comes from this being the first foray into social, and if they can do this successfully, it could then change investor perception which impacts the multiple.

But anyway, the real point of this post however is for me to try and integrate the +1 button onto my site, so I'll see if I can add it below. If it shows up, do me a favor and click it!

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