Google and Growth
A (Possible) Travel IPO
Stock Market Analysis Video
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As I mentioned a couple of weeks ago, I recently attended a conference in Las Vegas, which featured lots of sessions on Internet-related technologies. I won’t bore you with all the details, except to say that Google was the talk of the conference. Not surprising really, since the company has had a major impact on the way we use computers and the Internet since its founding in 1998.
Google dominates the U.S. online search market, but that’s just the tip of what the company does. From email (Gmail) and photo sharing (Picasa) to a mobile phone operating system (Android) to its own Web browser (Chrome), Google truly has its hands in every facet of our online lives. (The company is so ubiquitous that the word Google is now a verb!)
Currently, Google is focusing its searches on the local and personal. You may have noticed that the location you are searching from appears when you look something up through Google. And the company is modifying search results based on other things you’ve searched for in a bid to provide you with a more personal experience.
I last wrote about Google (GOOG) in Cabot Wealth Advisory on September 11, right after the company debuted its Instant Search feature. At the time, the stock was trading around 450 and I featured a write-up by Cabot Benjamin Graham Value Letter Editor J. Royden Ward. It’s still in the Wise Owl portfolio and Roy recommends holding to his Minimum Sell Price of 887.57.
Since that write-up, the stock has shot up over 600 and is now trading around 595. And it was also added to the Cabot Market Letter Model Portfolio on October 20, with Editor Michael Cintolo writing this:
“Google was a big winner in the middle of the 2000s as it dominated the rapidly-growing market for paid Internet search. However, in the U.S., that market is mature; growth in its core business is solid but not spectacular. So why recommend Google? Because the company is reinventing itself—revenue from display and video-related ads (such as those on YouTube, which is attracting two billion page views per week) and mobile searches (thanks to its popular Android operating system) are now running at a combined $3.5 billion annually. There’s no reason to think that these business lines won’t become large shares of Google’s pie in the quarters to come. Investors agree—GOOG gapped up 11% on more than five times average volume last Friday after blowing away earnings expectations. We think the stock is a good buy here and expect higher prices. As for the high price of the stock … focus on the amount of dollars you’re investing, not the number of shares.”
In his most recent issue of Cabot Market Letter, Mike urged caution, reminding subscribers that the market has basically gone straight up for the last two-and-a-half months and likely needs time to rest. But we still believe in the long-term story that Google has to offer. There’s no doubt that the company is still innovative and has room to grow.
You could buy GOOG here and hope for the best or you could take a subscription to Cabot Market Letter and get the latest buy, sell and hold advice (as well as information on our proprietary market timing indicators).
In other interesting news this week, travel search engine Kayak.com has filed with the SEC to have an initial public offering in which the company plans to raise $50 million.
Kayak compiles results from travel websites in one place, so you don’t have to search Expedia, Orbitz and Priceline.com, among others, to find the best deal on flights, hotels and more. I’ve used Kayak many times to book flights and found the service quite useful.
The company’s SEC filing provided some interesting statistics, including:
Kayak’s revenues grew 48% year-over-year to $128 million for the nine months ended September 30. And the company’s revenue in the third quarter alone, which also ended September 30, grew 80% from last year to $48 million.
Kayak performed 469 million searches in the first nine months of the year, up 37% from 2009. And Kayak’s mobile application has been downloaded almost four million times since March 2009.
Nearly 19% of Kayak’s revenue for the year came from Orbitz, while 25% came from Expedia. Google supplied 8% from advertising.
Kayak does face some challenges. Currently, it depends on a third-party, ITA Software, to query airfare results. Airfare searches make up 85% of the queries performed on Kayak and ITA supplied information for 42% of those searches this year.
The problem is that Google is trying to buy ITA, and if it succeeds, Google could create its own flight search tool, which at the least, would create some hefty competition for Kayak, and at the worst, could cripple the business.
Either way, we generally don’t advise rushing into IPOs. We recommend letting the stock get its legs for a few weeks; if the stock can build a sound structure on the chart, and if the fundamentals are enticing, we may then go ahead and take a stab at it.
If you are looking for a stock in the travel arena though, I have one for you today: Priceline.com (PCLN), which was recently recommended in Cabot Top Ten Weekly by Editor Michael Cintolo:
“Priceline.com remains one of the handful of liquid (i.e., very well-traded and institutionally owned) leaders of this bull move, and the reason is obvious–business is very good and continually outpaces even the most bullish forecasts. Last week, the company continued that trend by putting up another round of outstanding numbers, and the under-the-hood metrics were also impressive–gross travel bookings leaped 47% from the prior year, international revenues surged 67%, hotel bookings leaped 54% and the firm’s newly-acquired rental car unit sales nearly doubled! Domestically, growth is slower but steady, and management has been pushing all the right buttons in positioning its brand around the world. Analysts significantly hiked their outlooks following the earnings report (next year’s earnings estimate is now $17.53 per share, up from $15.45 one month ago), which would mark a healthy 33% hike from 2010. We like it.”
“PCLN hasn’t gotten many headlines and the stock isn’t the hottest thing on the planet. Nevertheless, shares remain in a firm uptrend, and have barely had any hiccups since the summer. Last week’s earnings gap was solid—shares rose 8% on nearly triple average volume—but not so powerful that we think it’ll be all up from here for PCLN. A pullback of a few percent is possible, and would be buyable if it comes.”
Click here to learn more about PCLN and other leading stocks recommended by Cabot Top Ten Weekly.
In this week’s Stock Market Analysis Video, Cabot China & Emerging Market Report Editor Paul Goodwin says that the general trend of the market remains up. Paul also talked about the importance of being in-step with the market itself, which can be accomplished by using Cabot’s market timing indicators. Stocks discussed include Google (GOOG), Ford (F), Riverbed (RVBD), Freeport-McMoRan (FCX) Salesforce.com (CRM), VanceInfo (VIT), Focus Media (FMCN) and Ctrip.com (CTRP). Watch the Stock Market Analysis Video.
In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, there are links below to each issue.
On Monday, Timothy Lutts discussed the challenges in balancing the United States’ budget and reducing the national debt. Tim analyzed proposals from the National Commission on Fiscal Responsibility and Reform to rectify these problems. Tim also discussed the history of Social Security before it was a government-sponsored program. Tim also featured a stock that he thinks might be the next Cisco (CSCO). Featured stock: Riverbed Technology (RVBD).
On Thursday, Paul Goodwin discussed how the recession has turned many people, including two of his close friends, into reluctant entrepreneurs. Paul also discussed what he’s thankful for this year and a Chinese stock that looks promising. Featured stock: China Southern Airlines (ZNH).
Until next time,
Editor of Cabot Wealth Advisory
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