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Friday, October 20, 2006

Google: "Remember, Thou Art Mortal"


After an important triumph against an enemy of Rome, a general would parade through the streets of the capital. Someone was assigned the task of standing behind the victor in his chariot to hold the crown of laural and oak above the conqueror's head. The companion had another role. He was to repeat the words "remember, thou art mortal". Not even a Roman general could live to conquer forever.

Google's third quarter results were extraordinary. Profits almost doubled to $733 million. Revenue rose 70%. By contrast, Yahoo!'s Q3 net was only $159 million, and revenue rose only 20%. Of course, there was a time when Yahoo! was Google, at least in the market's view. That was back when Yahoo!'s stock traded at $108, and not at the $23 where it changes hands now.

Over the next few days, it is not a bad bet to think that Google will pierce the all-time high of $475 that it posted in January. That would give the company a market cap of about$150 billion. That would put it within spitting distance of Wal-Mart's cap.

Google now has 45% of the search market in the US according to Comscore. Yahoo! has fallen to 28% and MSN to 12%.

Since Google's revenue is almost 100% advertising that is based off its search technology, the most important question is how much of the search market Google can get. It has entered other businesses like e-mail, spreadsheets, photo-sharing and mapping, but there is no indication that any of these businesses will generate money, at least short term. Google does have a foothold in the burgeoning video market that may have a large video advertising component. Maybe and eventually.

Google can't get 100% of the search market. It could get 50%. Perhaps, 60%, although that would seem to be a stretch.The company also might have to face a merger of those it has vanquished. AOL. Yahoo!. MSN. None of these is likely to challenge Google's growth on its own, but, in some combination, they might give the largest search company trouble.

Google's stock may go to $500. It may even hit $600.

But, then there is what happens after that.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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