Google To $2000/Share? Somebody Muzzle Blodget
Michael Arrington
65 comments »
Henry Blodget made his name by predicting outlandish price increases for Internet stocks in the late nineties. A lot of people lost a lot of money (or, all their money) by listening to his recommendations. The government charged him with securities fraud in 2003 and he was subsequently banned from the securities industry for life.
But Blodget is a bit of a one trick pony, and he likes to stay in the headlines. So he continues build cases for big valuations of Internet companies. The only difference is he publishes these thoughts on his blogs. And people still listen to what he has to say.
He isn’t always bullish (he’s recently trashed Yahoo and eBay). But he can’t seem to contain his regular predictive outbursts that such-and-such stock is worth massively more than it is now.
When he’s talking about Facebook being worth $6-$20 billion that’s ok, because it isn’t a public stock and no one is going to go out and throw away their life savings. But when he builds a case for Google’s stock to go to $2,000/share, he’s crossing a line.
Remember a couple years back when some analyst floated the idea that Google could eventually be worth $2,000 a share–and was ridiculed from coast to coast? Well, first it’s worth noting that Google is now almost a third of the way there. Second, it’s worth noting that $2,000 a share would mean a market cap of about $750 billion, which–given a reasonable time horizon–just isn’t that far-fetched.
The problem is that Blodget, like all analysts, build authoritative sounding but essentially bullshit predictive models to back up whatever prediction they’ve just pulled out of their ass. When Blodget predicted a massive Amazon price increase in 1998, for example, he used three models: price to revenue multiples, revenue growth assumption, and an earnings multiple growth model. When you read it, it sounds like he really knows what he’s talking about. But he’s really just predicting future growth based on past growth and backing it up with a lot of smoke and mirrors. If the data doesn’t fit or doesn’t exist, a common trick is to use a competitor’s or analogous company’s data instead. One way or another, a model can be built around that headline grabbing prediction.
Blodget builds his Google $2,000 prediction on similar models - in this case he talks about a multiple on free cash flow.
But market conditions change and these models just aren’t capable of taking that into consideration. Anything could derail Google’s current growth rates - a credit crunch, a housing collapse or a recession could all have a big impact on consumer spending and the advertising market, and impact Google massively. The market, over the long run, is fairly efficient at predicting the value of companies. If Google really was going to go to $2,000 per share, it would be priced there already, minus only a discount based on the time value of money. It isn’t, and so if you’re betting that Google is going to $2,000 that means you are betting against the market and all its participants. And all you have to go on are Blodget’s bullshit predictive models.
We are often criticized for being overly optimistic about young startups. That’s worth arguing over, but if we get it wrong at least we’re not moving the market. Venture capitalists do their own due diligence and don’t last long if they place too many incorrect bets. But when journalists start writing about public companies, stock prices can (and do) move, and people can lose a lot of money.
Blodget wants to stay in the headlines, but he has little concern for those that follow his advice. “If it doesn’t happen, don’t come whining to us,” he says in the Google post. That’s a disclaimer of sorts, but it also shows that he’s not all that interested in the fallout that may occur from his words. And if his past predictions are any indicator of Blodget’s ability to pick stocks, a fallout is almost certainly coming.
Update: Well, I sure was wrong. Blodget nails it in a new post valuing TechCrunch at a cool $100 million. My thoughts at Crunchnotes.
Every time I read Blodget, I smell 100% wrongheaded bullshit. So now I read him the way I read, say, Ann Coulter or some other lunatic with a keyboard: for entertainment purposes only.
Muzzle another blogger because he likes to get attention….or be provocative….or say whatever he wants to say….because it might lead others to do stupid things with their stock portfolios.
Give me a break. Investors invest at their own risk…they don’t need a blogger babysitter.
If we muzzled every blogger with a stupid idea, I don’t think any blogs would be left, including this one. And individuals do invest in private companies, too, so your overoptimistic posts could be deemed even more harmful since there is no efficient market to set a valuation for private rounds. But that’s silly - you should be as optimistic as you please, and so should Blodget. In the immortal words of Ty Webb, “This isn’t Russia. Is this Russia? This isn’t Russia.”
Hey Blodget!….1999 called and they want their stock valuations back!
Google’s going to the moon….like earthweb.com
Erm. Eric quoted Blodget’s valuation of HuffPo just this week as an authoritative source… Might want to send this post around as a reminder memo of what an asshat Blodget is.
Erik - extra points for the caddyshack quote. you’re ahhh, you’re…you’re not good.
Jesus Christ…he’s being sarcastic. Give the guy a little credit. And watch Google pop tomorrow.
Google’s p/e is about 48 as of the time of this post according to Yahoo finance. This is very risky in and of itself - what would be Google’s p/e if it were trading at $2,000 per share?
I agree with Mike, this prediction is more ridiculous than those Henry Blodgett made in the late 90’s. At least he’s got Google’s momentum on his side this time, unlike the late 90’s when everything internet had momentum.
What b-school did Blodgett attend?
Someone I know once attended a briefing by Blodget when he was still working as an analyst. She said he was very smooth…and very clueless. Apparently, not much has changed.
How many GOOG shares that Blodget has in his portfolio…? …banned from the securities industry for life…
I think this guy just likes the sound of his voice
Google said that they would follow the style of Berkshire Hathaway (BRKA) and not split the stock. Berkshire is now at $119,000 a share. Now I haven’t done the math about the number of outstanding shares for each, but what’s the market on the insurance industry vs. market cap on “google-industry”?
Wait, huh? If Google were going to $2000, it would already be priced there? How does that work? Adding the phrase “minus the time value of money” doesn’t magically make that a sensical statement.
I used to manage an Internet mutual fund, and I interacted with many Wall Street Internet analysts, including Henry Blodget. In my opinion he was a good analyst. I would be interested in your providing some more detail as to why you think Google could not rise another 300% from this level. Your point is well taken that the market discounts stocks, but there are a couple of counter arguments: first, high-risk stocks tend to have a big discount to their upside potential; second, the market can often be slow to discount break-out opportunities.
@Erik : lol, well said!
Totally disagree with Mike. Blodget has been writing sensible commentary and GOOG to $1t is fit for consumption. Inside of just attacking Blodgett, why not put forth some actual analysis?
Bullshit……shit load of crap
http://vidsonly.blogspot.com
Good article Michael! It’s always nice to read articles like this which denounces bullshitting low-lifes such as Blodget. This serves as a wake-up call for lots of unsuspecting and uninformed average joes. Can you believe this Blodget guy got a job at Merrill Lynch? Oh boy. Back then, Merrill Lynch must be absolutely clueless about this Internet thing and/or just wanted to cash in on the popularity of Blodget.
interesting, you throw out a slew of financial terms handed to you by an mba intern but appear to understand nothing regarding the implications…instead of explaining “why” he is wrong by countering with intelligent counter-analysis utilizing the same set of variables and comparables, you simply shit on him….honestly, it just sounds like a bunch of fucking whining because people listen to what the guy has to say - not a few thousand vc’s and startups and aspiring entrepreneurs - but i mean institutional and individual investors listen to this guy…your tone is caustic, jealous, and a bit ludicrous considering that your entire rebuttal is baseless…
if all you’re interested in doing is starting a flame war and shitting on somebody in public, why not just do it in your own forums? doesn’t seem to merit a blog post…
as for the 2k per share, exactly why isn’t it possible? have you looked at microsoft’s earnings through early to late 80’s? oracle? ibm? elgoog is going after the applications market and the enterprise market - you need to give them at least five years to figure these things out and believe me, they will eventually figure it out…and you know that i like to kick the shit out of elgoog whenever i can, but honestly, you’re saying nothing up there, just standing next to a convertible and screaming to your friends because the better looking guy is inside with the girl…
anonymouse, I did link to Blodget’s valuation estimate of the HuffPost in a (second) update to the post you ref above because in that case a) the assumptions behind his estimate seemed reasonable, and b) it was relevant to the story. The guy isn’t always wrong.
I’m going to have to go with commenter number 7 on this one, Mike — it seemed obvious to me that Blodget was being sarcastic just to get a reaction (which he did). He knows his reputation better than anyone, and it was clear that he was having some fun with people who said he was too pessimistic. At least it seemed clear to me. No one could seriously argue that Google would be worth a trillion dollars — not even the old Blodget.
I think hes basing it more on the devaluation of the dollar, than the increase in google stock price.
It’s illegal to talk about stocks, and what you think will happen down the road, now? Just because people are idiots and make their financial decisions on his stupid opinion doesn’t mean he should be fined.
The definition of insanity is doing the same thing over and over expecting different results. You must be insane or stupid to buy a price-to-perfection company like GOOG, just like all the other people who bought YHOO, CSCO, SUNW, at their peaks in the 1999-2001 periods.
Google has an enterprise value of $171 Billion and runrate Free Cash Flow of $2.6 Billion giving at an EV/FCF ratio of 65. Any financial analyst worth his salt would tell you that implies annualized FCF growth of 30-40% for 10 years! If you want to blow your money, why not just go to Vegas, you’ll have more fun!
You know, my natural inclination is to suggest $2k is nuts, but if you’d told ppl Google would hit $600 a share when it floated they’d probably think the same thing. I’m betting on $1k a share within 12 months if there is no Government interference with Google over that time: if the US Government starts interfering on competition/ anti-trust grounds Google could be in trouble and I’d expect the stock to fall.
Also commenter 22 has a good point: the continued decline of the US dollar should see a company with strong international exposure such as Google rise in US dollar terms, after all whilst the US dollar income will continue to grow, the foreign income will skyrocket as the dollar drops.
Stick to the tech M8. And we are sooooo tired of the google posts.
Oh boy, here we go!
This is round one of a ten round fight.
I read both blogs multiple times during the day. I find them to be very good at their respective niches. Techcrunch is excellent at delivering web 2.0 company news, and Silicon Alley Insider (SAI) is very good at delivering/covering new media news with an additional emphasis on how it translates into revenue (business model).
As far as Henry giving his opinion on a stock, more power to him…but, I would have probably cut in short of putting a price target on it.
As funny as this seems I really did see a very could fit between both TechCrunch and SAI.
1) West Coast - Techcrunch
2) East Coast - SAI
2) Emerging technology coverage - Techcrunch
3) Revenue Model Breakdown/Quantitative/Qualitative Analysis - SAI
4) Trade Shows - Techcrunch
….I’m sure we will see round two tomorrow from Henry on his blog as a rebuttal.
Michael clearly hasn’t been reading Henry too closely. Henry’s called Google “expensive” several times over the past year, most recently on June 22, when Google was at $525. Separately, Henry pretty clearly described the piece today as a thought experiment. Basically, Michael appears to have gone over the top. Check out my blog for a full run-down of this brewing controversy.
What goes up, must come down
As a part of $2k, check the Google recipes search http://www.suggestusability.co.....earch.html
“If Google really was going to go to $2,000 per share, it would be priced there already, minus only a discount based on the time value of money.”
uh, what?
#1 Rewind one year….. “If BIDU (priced at $82/share) really was going to go to $200/share, it would be priced there already, minus only a discount based on the time value of money.”
Whoops….$330 today.
#2 His price target on AMZN hit. Wouldn’t people that listened to him and bought when he issued the target, and sold when the target was hit have MADE serious money?
Mike….TechCrunch rocks when you guys talk startups, but this is insanely illogical stuff that looks really petty and personal.
It should also be noted that hist post SPECIFICALLY mentions a time-frame of 20-30 years. So why not test the “time value of money” discount?
With a current price of $585/share…..
Let’s assume an 8% average rate of return (pretty standard historical average for stocks and a “time value of money” many investors expect).
2008: $631
2009: $694
2010: $764
2011: $840
2012: $925
2013: $1017
2014: $1119
2015: $1231
2016: $1354
2017: $1489
2018: $1638
2019: $1802
2020: $1982
2021: $2181
Yep, about 13-14 years away assuming some straight forward “time value of money” math. Faster than the time-frames mentioned in the offending article.
This guy is never right!
Take my word I had 3.76 million reasons for thinking this.
He is like Gaggle, a fraud!
Blodget’s conclusion is surprisingly plausible. His “reasoning” seems pretty weak — trying to make predictions 20 years out based on continuation of currently observed ratios assumes more stationarity then history proves reasonable — but the conclusion seems right, surprisingly.
I’d rather have Alley Insider over TC any day. They actually know how to read 10Qs and do investigative reporting.
And $2,000/share isn’t outlandish. It’s just far fetched. There’s a difference.
@Dave:
“elgoog is going after the applications market and the enterprise market - you need to give them at least five years to figure these things out and believe me, they will eventually figure it out…”
Looks like you too, you are “saying nothing up there”.
Not a Blodget fan, but you may have been too harsh. I did read this as a “thought exercise” as he stated and a minimum of a 10 year investment. Perhaps, I was reading past the headlines.
people who blame blodget for whatever losses they incurred have no one else to blame but themselves. period.
Stocks go up and stocks go down.
Google is a great company. The question isn’t whether it will hit 2000, it absolutely will, the question is “when.”
For teh Bidu mention up above… I got in at 90 and out the next day at 140. I was so happy at the gain… especially when I watched it drop down to 60 a few months later. Of course… Now at 330… I’m kicking myself.
-Don
Interesting write-up Mike. I can’t stand Blodget myself, but in this case-sarcasm aside, it is very possible for Google to attain $2k/share.
In seven short yrs they have surpassed the mkt value of IBM, Cisco, Dell and others. The beauty of it is, Google deals in a ‘virtual’ products/svcs that are not limited by physical scale nor international bounderies–save China.
All that said, there’s no denying theyre susceptible to mkt downturns like you said for whatever reason(eg housing, consumer spending, etc), but a significant and rapidly growing revenue stream is coming from outside th US. That combined with the viral nature of Adwords/Adsense, increased development on webbased software, and a foray into mobile devices, (which might possibly lead to an ad-sponsored mobile svc) has them well positioned to withstand short/long term mkt fluctuations in the US.
Anyway, I thk Blodget is blowing smoke out his ass 99% of the time, but in the case, his sarcasm may prove to be true.
[disclaimer: i own no Google stock. my ipo allocation wer sold, with regret, at $160/sh. now i can only afford options :-|]
I think the first part of this - ranting against Blodgett’s bubble behavior - has some merit, but his blog stuff is excellent financial analysis and explanation and the Google piece was NOT at all suggesting he thinks Google will go to 2000. It was correctly noting that for Google to go to 2000 in a few decades nothing extraordinary would need to happen - Google would just need to grow like crazy. I don’t think he even holds Google so it’s not fair to imply he’s trying to inflate the stock.
Mike,
You shouldn’t have linked to Valleywag’s post - http://valleywag.com/tech/henr.....204277.php
The comments in the post clearly show why the Wag was wrong on that count and Henry in fact was right about the $400 forecast for AMZN at that time.
Nik - the stock did hit that price, then fell apart. The question is, would it have hit that price if Blodget hadn’t predicted it? The analysts had a lot of power and clearly affect stock prices. but in the end, the amazon fundamentals came nowhere near supporting that valuation.
to the commenters that say I just don’t understand Blodget’s methodologies - Actually I do. In the late nineties I wrote a book on initial public offerings and spent countless hours working with investment bankers to understand, deeply, how their valuation models work before I wrote about them. And they are, 100%, bullshit. I kept it top level in the post above bc that kind of detail isn’t really relevant. But I can certainly write a longer post explaining in detail how these models can be manipulated to come to absolutely any conclusion the author wants.
“the stock [Amazon] did hit that price, then fell apart”
split adjusted, Amazon is only 10% below the famous $400 price target.
This guy is an absolute joke. Here’s an article from 2006 where he says the Google run is going to be over in the near future.
http://www.internetoutsider.co....._whil.html
I must be crazy. Blodget has Google reaching $2000 in 10-15 years. I just did some “magic” calculations and put Google at over $3000 in 10 years.
Here are my conservative estimates (from about a month ago) that show that Google is fairly valued right now.
Starting EPS: $10.58
EPS Growth: 20%
EPS in 10 Years: $65.51 (This is simply calculated by compounding our starting EPS by 20% for 10 years)
Average PE: 32 (Or more specifically what we can expect the PE to be in 10 years.)
Future Value: $3,078.90 (Simply the future EPS x the future PE)
Sticker Price: $524.07 (In order to make a 15% per year return on my investment in GOOG, I’d have to buy at this price.)
You could think of the difference between the future $3,078 value and the current $500-$600 as an asumption that the “time value of money” is about 15%.
More at this link, including my less conservative estimate that puts a sticker price (what GOOG should be valued at now) at $1000:
http://www.investorgeeks.com/a.....alue-play/
For Google to approach the valuations I’ve calculated, it would have to make about $49 Billion per year in earnings. Exxon just posted record earnings of $36 Billion, which is about $49 Billion in 2017 dollars (assuming 3% inflation). So if you think Google can be as big of an earner as Exxon in 10 years, the valuation is sound. How much you agree with that outcome will vary.
Blodget has sent you some flowers
http://www.alleyinsider.com/20.....-to-s.html
“But I can certainly write a longer post explaining in detail how these models can be manipulated to come to absolutely any conclusion the author wants.”
I would be interested!
I would interested in seeing a longer post as well with some detail supporting why the $2k stock price is “bullshit” for Google.
This won’t matter: “a credit crunch, a housing collapse or a recession” Google runs ads worldwide, collects from and pays more webmasters from more countries than any other program.
Once G-Phone is out they sink Paypal/Visa/Mastercard with that new phone-payment patent
“to the commenters that say I just don’t understand Blodget’s methodologies - Actually I do. In the late nineties I wrote a book on initial public offerings and spent countless hours working with investment bankers to understand, deeply, how their valuation models work before I wrote about them. And they are, 100%, bullshit. I kept it top level in the post above bc that kind of detail isn’t really relevant. But I can certainly write a longer post explaining in detail how these models can be manipulated to come to absolutely any conclusion the author wants.”
So one could extrapolate that what you are really saying that ALL public companies valuation estimates/ guideposts, and hence the stock quotes each and everyday, are really illusionary, arbitrary “bullshit” functions of “THE MAN on Wall Street” ??
Perhaps we would all do better getting our ideas and stock estimates from the blogging community- which has as much - if not more back office, two-handed,clandestine secretive intentions toward gaining riches than most industries, all in the name of “being heard and standing out”–which is all I believe Blodget is trying to do anyway
i should have bought it at 200$
bugger.
I did buy it at $200.
Google is WEB bubble 2.0 in its prime, is it really different this time?
http://sufiy.blogspot.com/search?q=Google
I think there is no reason why Blodget should be criticized for his views. There are many chances that the Google can Reach that point .
Every idiot has a right to be parted from his money. If ramblings of other idiots contribute to that, it is just the way of things.