Google or Anglo and a bit?

MONEYWEB, Belinda Anderson, 27 July 2004

The search engine company says it could be worth more than the SA and London-listed heavy-weight.

Investors could buy all of Anglo American and still have change for the same price that Google reckons it could be valued at in the upcoming initial public offering (IPO) on the US-tech heavy Nasdaq. In terms of its filing with the Securities Exchange Commission, Google could be valued at up to $36-bn when it comes to the market probably next month, raising as much as $3,3-bn through the sale of a 9% stake. Anglo American has a market cap of roughly $30-bn.

Arthur Buchner from Nedcor Securities, speaking on Moneyweb’s radio partner1485 AM in the morning programme said that although the search engine was a fantastic concept, it would be difficult for the company to make sufficient money to justify such a valuation: “The PE must be through the roof”.

According to the New York Times, the proposed valuation would put Google on a price to earnings ratio of 150 to 187 times its last four quarters’ earnings, compared to rival Yahoo’s 105 times PE. The Times quoted one analyst; Andrew Schroepfer, the president of technology company research firm Tier1 Research, saying that on a pure valuation basis, the price was expensive, but if one applied the creativity of the internet bubble years, it could look cheap.

Another analyst; Mark Herskovitz the manager of Dreyfus Premier Technology Growth Fund, quoted on Reuters, remarked that the entire exercise was becoming “somewhat like a circus”. In comparison to other US companies, the valuation would make Google more valuable than Ford Motor Corporation, as well as McDonalds, and just smaller than rival Yahoo. The shares are expected to go to market at between $108 and $135 each.

Back in May, when analysts were reckoning that Google would raise about $2,7-bn, the listing was described by Fortune as the “most anticipated securities filing ever”. The Economist said of the listing at that stage: “Not since the Netscape IPO in 1995, which kicked off the dotcom era, have techies been so excited.”

On Tuesday, with the details of the IPO revealing it to be even bigger than first expected, the story made headlines around the world, featuring prominently in highly respected publications like the Financial Times and New York Times. According to the FT, the Google valuation topped most informal Wall Street estimates, but the final price could rise much higher due to the “ground-breaking” auction method being used to sell the shares. The company said it had chosen this process to make the offering fairer.

Ironically, the IPO details were filed on a day that Google’s website was downed for several hours by a virus.

The success of both Google and Yahoo in the search engine market has spurred cash-flash software giant Microsoft into action. On Tuesday, Bloomberg reported Microsoft as saying that it was working with MSNBC – the joint venture between MSN and NBC News – to test a free service in the US that gathers news from websites, and will search roughly 4 800 sources. Bloomberg said Microsoft was trying to gain advertisers and web surfers from both Google and Yahoo.

Posted in Market commentary

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