Henry Blodget, the infamous Merrill Lynch analyst who put ridiculous price targets on internet stocks during the tech bubble (the most notorious being his $400 target for Amazon.com in October 1998) and was ultimately barred from the securities industry, wrote in a blog post yesterday that Google $2000 “just isn’t that far fetched given a reasonable time horizon”.
Now when you look at the specifics, namely that he’s talking about a pretty big time horizon, I would have to agree with him.
Google $2000 would give the company a $750 billion market cap, according to Blodget (it’s $631 billion by my calculations based on 315 million diluted shares outstanding as of 2Q07).
If they can generate $25 billion in annual free cash, put a 30 multiple on that and you get Google $2000 (it’s only $21 billion if you use my numbers).
They’re on track to generate more than $3 billion this year so if the internet can continue to grow rapidly and worldwide over the next 10 to 20 years this kind of thing is not out of the question.
My problem with the post is the timing.
Hot tech stocks (Google, Apple, Amazon, Cisco) have been going nuts the last 6 weeks. Google was closing in on $600 yesterday. Cramer said yesterday during his “Stop Trading” segment on Erin Burnett’s “Street Signs” that Google is heading to $600.
If Google gets to $2000 it will be at least (at least!) 8 to 10 years in the future.
But when you put a post up like this it gets everybody real excited that it’s gonna get there soon and you better hop on now. When really, now might be the time to do a little selling, at least short term.
UPDATE (Fri 10/5, 1:00pm): Analysts are at it again, upping their price targets on Google. Bear raised theirs to $700 today and Nollenberger Capital raised theirs to $650.
The last time we had this kind of price target raising frenzy was after Google’s 1st quarter earnings release in April.
It bears asking: why now? The stock was $525 before the Fed cut 50 basis points and now it’s just below $600 at around $595 – up 13.3% in 4 weeks.
The markets answer right now: who cares!