I am not a great public market investor.  I like markets that are less efficient and reward long term patient and activist capital.

But in light of my posts on Yahoo! and Google, I couldn’t help but post this chart.


Clearly we are witnessing a correction in the stock prices of Google and Yahoo!, driven I suppose by the market’s dissatisfaction with Yahoo!’s Q4 earnings report.  Google will report on January 31 and so its stock will probably be weak until the Street can see its numbers.

The fear is that search advertising is slowing and Google can’t possibly meet the lofty expectations that are inherent in a PE ratio of 90.

I suspect that Google’s Q4 numbers will be a lot better than Yahoo!’s.  Yahoo suffers from being a weak number two in paid search and they have way less advertisers and they generate way less revenue per search than Google.

But I also feel that paid search as a percentage of the overall online marketing budgets will decline in 2006.  Many big marketers are moving significant dollars online in 2006 and you simply cannot throw money at search.  Paid search only consumes money when people click on CPC ads.  You can buy more ads, more keywords, on more search networks, but its going to be a lot easier to spend 50-100% more money online by purchasing CPM advertsing than CPC. And so I suspect that Yahoo! may have a "banner" year in 2006 with banners.  I doubt that Google will be able to make a big move in CPM any easier than its competitors are finding competing with them in paid search.

So what would I do if I owned both stocks?  I honestly like YHOO at 26x earnings a lot more than GOOG at 90X earnings, but I think that Google will have a better Q4 than Yahoo!

And its a lot easier to sell GOOG after such a huge runup in the past year.

Tough call.  And since I am not a good public market investor, I’ll avoid making it.

#VC & Technology