Will Google soon pass Exxon in market value?November 26, 2013: 1:01 PM ET
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
Larry Page seems like a pretty boring guy. I've listened to many Google (GOOG) conference calls since the company went public nine years ago. And the most exciting thing about Page is when he starts talking about how "super-excited" he is. He is not Mark Zuckerberg. And he is decidedly not Marissa Mayer.
But who cares? While Facebook (FB) and Yahoo (YHOO) generate a lot of attention for their cult of personality CEOs -- Cue the Living Color ... "Vivid" was released 25 years ago? Wow. I'm old. And off on a tangent apparently. -- Google merely goes about its business of racking up exorbitant profits.
Google hit an all-time high Tuesday. The company's market value is now around $350 billion. Google is now the third largest company in the United States based on market value. It passed rival Microsoft (MSFT) earlier this year and it is quickly catching up to Exxon Mobil (XOM), which is currently worth about $415 billion.
Could Google soon pass Exxon? It is not out of the realm of possibility. A difference of $65 billion may sound staggeringly large. But look at the chart below, which shows how much ground Google has gained on Exxon just this year. It seems like Google has one of Exxon predecessor company Esso's tigers in its tank.
Google's stock is up nearly 50% this year. Exxon's shares have gained a mere 9%. It's probably unreasonable to think that Google will continue to surge this dramatically over the course of 2014. But let's say Google's stock goes up 25% more from current levels while Exxon shares go up 5%. If that happens, Google will be slightly ahead of Exxon.
Of course both stocks could take off. Both could plunge if the raging bull market finally decides to rest what must certainly be a weary head. Or Exxon could surge if energy prices spike while Google takes a breather. I'm not suggesting that Google will definitely pass Exxon. But it's not a long shot by any means.
Google, simply put, remains one of the stars of the tech sector. While there are legitimate concerns about slowing growth at tech juggernauts like Microsoft, IBM (IBM), Oracle (ORCL) and Cisco (CSCO), investors need not worry about that with Google.
Those other four companies -- which all took their turns as one of Tech's Four Horsemen at some point during the past decade -- each have projected earnings growth rates of about 10% a year for the next few years. Google, on the other hand, is expected to post average profit increases of about 17% a year for the next few years.
Google's stock price reflects this enthusiasm. Shares are trading at 20 times 2014 earnings estimates. That's not cheap. But it isn't so high that it's going to give you altitude sickness either ... especially when you compare Google to some of its top rivals.
Facebook, which admittedly deserves some premium to Google because it's a newer and more rapidly growing company, is trading at more than 40 times 2014 earnings estimates. That seems a bit rich.
Twitter (TWTR)? You can't compute a P/E ratio for it yet. The E stands for earnings. Analysts are forecasting a loss in 2014.
And then there's Yahoo. It is valued at 21.5 times 2014 profit forecasts. Really? Yes, Mayer has done an amazing job ... of selling a great turnaround story. But the proof, as they say (although I'm not exactly sure who "they" are), is in the pudding. Yahoo's profits are expected to rise about 10% a year for the next few years.
In other words, Wall Street still thinks Yahoo is more like Microsoft and IBM than it is Google. So why should Yahoo deserve any premium to Google? Are Katie Couric and Mayer's raiding of the editorial staff of The New York Times worth that much?
Google also has gobs (technical term for $56.5 billion) of cash that it can continue to use to invest in research and development, hire more staff and make deals. As I've written numerous times before, Google has done a phenomenal job with its M&A strategy: YouTube, DoubleClick and Android are the obvious stars. The jury is still out on Motorola though.
So with all that in mind, I don't see any reason why Google can't continue to climb higher. So instead of asking when Google will pass Exxon, maybe the question should be when Google will top current market value leader Apple (AAPL).
Apple is worth $475 billion. So Google still has a long way to go. But if Android devices keep stealing share from iPhones and iPads, then maybe I'll be doing this column once more around Thanksgiving 2014.
Gobble gobble gobble! Speaking of Thanksgiving, there will be no Buzz column Thursday. I hope all my Yank readers (and I mean Americans overall and not just loyalists of the Bronx Bombers ... yes I even wish you Red Sox fans well) enjoy gorging on turkey, sweet potatoes and cranberry sauce. May your favorite football team win! Unless it's the Cowboys of course. (Stupid Giants!)
And for those (about to rock?) outside of the U.S. who don't have reason to keep stuffing your face until the tryptophan causes you to pass out on the couch, I hope you have a good day too.