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July 21, 2006
Not Ga-Ga for Google
Three guesses, and the first two don't count, why Google isn't trading higher, despite beating last night on sales and earnings. Give up?It's not that the company didn't post blow-out numbers, as some are suggesting. The numbers were good enough enough that bulls could have made that case, but they tripped over something.
I maintain that the culprit is GOOG's pesky capex figure. The company continues to grow capex faster than revenues, putting up a near $700m figure this quarter. What are these guys, a utility or something? Soon they'll be floating bonds.
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You said: "What are these guys, a utility or something?"
They're definitely working on it, I'm mildly surprised that they haven't started to compete directly with Amazon in the Web Services Space, if they offered a path to building 'Scale as Needed' web applications where application owners were charged by the cpu/second for usage they could leverage their expertise in large scale distributed systems into being a platform provider...heck if they could abstract away all the tedious power and network management from running a dot com that would vastly expand the potential market and expand the industry ecosystem by quite a bit.
I get the sense that Page and Brin are in it for the long game.
representing the buyer viewpoint I LOVE to see Google invest that capex in product. Having paid Microsoft hard cash it breaks my heart as a buyer to see $ 40 b go towards stock buy backs. Not enough new technology for our best and brightest to invest in?
Just what are these guys investing in? 1 billion buys you an aweful lot of servers (500K to 1 million servers, knowing the kind they traditionally have bought). Do they expect a lot more traffic or expect to offer lot more new services or ...?
As a point of comparison, guys like MySpace (which is the kind app and the kind of traffic Google presumably wants to do) are doing it with ~10K servers.
Are they capitalizing expenses via software project accounting? Is this another WorldCom? Are they going to release specific expense line items associated with the 700M?
$1B might buy 1M servers but you're going to fork
out more for power, cooling, data center leases,
bandwidth, network equipment, techies etc etc.
Which is why GOOG, YHOO, MSFT are pursuing data
centers in remote places with cheap power and land and labor,
near waterfalls and lakes and rivers and what not.
re MySpace: well, you can see what happened to
them recently with their power outage. I don't
think they're in the business of providing
a reliable or durable service at scale.
It's definitely the capex number and also the tax rate benefit they had this quarter.