To follow-up a recent post called Google's stock price doesn't matter, I just wanted to spend a minute looking at online advertising revenue projections. Publicis’ ZenithOptimedia says that online ad revenues in the US in 2005 will come in at around $16.4B while TV ad spend will amount to about $148.2B.
Looking to the future, Forrester analyst Charlene Li forecasts that online ad revenue in 2010 will be about $26B in the US. Of course, these figures exclude revenue outside of the US. Google is best poised to capitalize on international expansion (as indicated by Global implications of the $50 PC).
Unfortunately, these articles do not clearly state if paid search is included so I'll assume it is not. If paid search accounts for as much revenue as online ads, then total online marketing spend in the US is about $33B and about $67B globally.
Taking an extremely aggressive and optimistic view of Google, I'd like to do a "blue sky" valuation of Google's potential 5-year appreciation. Google's 2005 revenues should come in at around $4B. If I make a mostly baseless assumption that online marketing revenues will be about $100B in 2010. Since Google is best poised to capture international expansion and if we aggressively assume that Google will capture 40% of all online marketing spend by that year, then Google could captures $40B in revenue, or about 10 times what Google is seeing for revenue in 2005.
If true, this could mean that Google's stock price could increase from the current level of $420 per share to about $4200 per share in 2010.
Again, this is extremely aggressive. In any case, Google's current price of $420 is a fair short-term valuation. Any longer-term valuation that assumes Google will dominate online marketing will likely result in a present day valuation higher than $420.
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Posted by: Tom | June 27, 2006 at 08:13 PM