Why is Google valued so much higher than Yahoo?

Question

I know Yahoo has much more shares outstanding, but Google and Yahoo are not too far off when comparing their P/E ratios. In your opinion, Is Yahoo's stock an undervalued hidden gem?

Answer 1

For starters, GOOG has FIVE TIMES (5x) the net assets than YHOO.

http://finance.yahoo.com/q/bs?s=GOOG&ann...

http://finance.yahoo.com/q/bs?s=YHOO&ann...

GOOG Market Cap 07-18-08 (interday) @480.60/ sh

$150,972 Billion

YHOO Market Cap 07-18-08 (interday) @22.36/ sh

$30.7 Billion

Notice that GOOG's market cap is (correctly) priced FIVE TIMES that of YAHOO based on assets alone (5x $30B = $150B).

YHOO lost money last year (2007)

http://finance.yahoo.com/q/cf?s=YHOO&ann...

GOOG made $2.5 Billion

http://finance.yahoo.com/q/cf?s=GOOG&ann...

PE ratio should not be the sole factor to determine what a company is worth, or whether it is undervalued.

EXAMPLE:

Builder stocks (BZH, CTX, DHI, RYL, TOL, KBH) all had low PE's around 10 about two years ago. Now they all have zero PE (negative earnings). So a low PE does not always mean value.

http://finance.yahoo.com/q/co?s=KBH

There are reasons why stocks are priced as they are.

GOOG has a significant control of market share esp w/ the DoubleClick purchase.

GOOG is a middle-aged company now, and the earnings last night (07-17-08) suggests so.  

YHOO is trading where it is for one reason. A possible buy out by MSFT.

I don't think any GOOG-YHOO deal will materialize for anti-trust reasons.

The market does not see YHOO an an "undervalued hidden gem?"

The news on YHOO is so widely talked about, The Street knows where YHOO is trading. MSFT walked away from all previous offers - each offer being priced lower than the previous offer, has to tell you something. There is no one else surfacing to buy YHOO.

For YHOO to survive on their own has not worked over the last several years. YHOO is great company, and has value, just that YHOO has missed many opportunities to remain the "Jolly Green Giant" it once was in the late 90's.

YHOO could have bought GOOG for cheap before 2004, but they didn't. Right now, MSFT seems to be their only hope, but only if ego can be tamed.

Buying YHOO now is based on one reason = take over. Buy at what price? And if it doesn't happen, (and MSFT does not keep coming back to the table) YHOO's stock could easily become a teenager. I think MSFT wants YHOO but does not want to over pay for it.

As for GOOG, the market has repriced this stock that it is not the high flyer is used to be. When a company blames "the economy" for bad earnings, your stock will be blamed (sold off). IBM had good earnings, and has not blamed the economy. That should tell you who is making it and who is not.

Answer 2

Google as a company has more products that are successful. Google has done some great acquisitions and take overs like youtube which drives more and more users to google. It is popularity is skyrocketing.

Answer 3

Yahoo=failure that's loosing avertisement market share to google because of its inferior same products (ex Mail, Search Engine, Finance, Personalized home page)

Google=increasing market share due to superior search engine/other products.

Answer 4

The P/E is not the only asset valuation ratio. I wouldn't bet on Yahoo if I were you, their core business is in bad shape.

Answer 5

Think about it.  Google is so ubiquitous that "Google" is now used in English lexicon as a verb meaning to look up something on the internet.  You don't hear people saying "Let's Yahoo the directions to the restaurant."

That kind of branding has significant value.