“But the doubters–and there are many–point to shadows in the nursery: questions about Google’s geeky, dot-com-era management style and the possibility that it can’t cope with growth; recent sales of stock by insiders and other major stakeholders (including Time Warner, FORTUNE’s parent and owner of AOL, which lately unloaded $188 million worth); and increasing pressure from Microsoft, Yahoo, and other formidable rivals that would like to crush this infant in its crib”

“Goldman Sach’s Anthony Noto recently assumed that earnings could also rise by a 25% annual rate through at least 2009, which then justified his new “target price” of $215.

Now let’s check such math and figure out just where it implies Google might be ten years out. Assuming 20% annual returns from that $165-a-share level (a reasonable investor expectation given the risks), its market cap would soar from around $45 billion today to $278 billion by 2014. That is a lofty height where only a handful of blue chips stand today–GE, Exxon Mobil, Wal-Mart, Citigroup, Pfizer, and Microsoft, to be precise. Dazzling? Yes. Doable? Only if everything over the next ten years goes right.”

Yes Google is priced to perform well (and if they fail to do so the price will go down). It is great if you can buy a good stock cheaply but often you are better paying more for a very well managed company than buying cheap companies (by PE, cash flow or EVA or whatever measure you want to use). I don’t think Google investors are betting on impossible growth but time will tell. And the internet makes it easy to see what people predicted previously so we can all see who was right in 10 years.

For more see http://investing.curiouscatblog.net/2007/07/25/is-google-overpriced/

Common sense tells that Internet companies gets into web hosting when they fear that their main income stream will collapse…..

See what happened to Yahoo after they got into domain registration and web hosting and now google is following the same path, history repeats itself…..

Given that you can’t vote (and they don’t pay dividends – or at least didn’t last time I checked), it’s kinda hard to know how to value them from an expected future value perspective.

So I think there are potentially bigger problems than whether the implied growth is possible…

I would like to have owned some Google stock (obviously) with hindsight, but I am still amazed by how well it has been performing – by my reading the valuation pretty much implies that Google will own the universe by next Tuesday.

Of course, let’s not discount that possibility….