Comparing YHOO to GOOG

I have noticed that many people want to make a comparison of YHOO and GOOG. This is to produce a value comparison. I think that this is a mistake especially for GOOG which is a growth stock not a value stock. A growth stock is a stock that is based on it's future ability to produce earnings......We risk today's dollars for a future company value.

But what the heck. Let's do the calculation since I have seen many people use false assumptions in their calculations.

GOOG is currently at $498.79
YHOO is currently at $26.91

Let's start calculating forward PE's......But wait a minute GOOG reports on a non-GAAP basis and YHOO reports on a GAAP basis. The basic difference is that Yahoo accounts for option and one time expenses in their earnings and Google doesn't. Ok then, we will turn Google's earnings into GAAP. To add to this equation, GOOG created 3.2 million in dilution by the Youtube purchase and YHOO is buying back $1 billion worth of it's stock. Everything is fair right?

Information pertinent to GOOG:

Estimated options expensing for 2007: $475 million dollars (From Goog's employee plan)
Number of dilutive shares: 310.574 million
Number of shares created by Youtube dilution: 3.2 million
2007 consensus estimated EPS: $13.70
Total shares after Youtube buyout: 313.774
So let's back out the option expenses: $13.70-($475/313.774)=$12.19
Dilutive forward EPS: (310.574/313.774)$12.19=$12.07
Forward PE: $498.79/$12.07=41.32

Information pertinent to YHOO
2007 consensus EPS: $.60
Number of dilutive shares: 1.36 billion
Number of shares leaving the float due to buy back: $1 billion/$26.91=37 million shares
Number of shares after buyback: 1360 million - 37 million=1323 million
Adjusted EPS: (1360/1323)$.60=$.62
Forward PE: $26.91/$.62=43.4

Well Goog=41.32 and Yhoo=43.4 are closer than Goog=36.41 and Yhoo=44.85. It is kind of crazy how these numbers come out huh?

Now I tend to think that YHOO hovers around the $24-$27 range and GOOG will probably head for the mid $500's just prior to earnings. What would these valuations look at that time. You know what, there will be the same comparisons made at that time.

Yes, I know that I made some assumptions. There are many more calculations that go into these numbers, but that is not my point. These valuation comparisons are useless especially for GOOG. These calculations that other people made on the valuation take two unlike numbers (GAAP and non-GAAP) and try to compare them. Both companies are going to grow and the price of the stocks will be based on how much people currently believe in the future numbers.

The main point is that none of these numbers have been achieved yet. Hey guys they are future numbers.

Now one last way to look at this is that because YHOO's numbers were lite this year they will have an easier time achieving the future numbers......Hmmmmm

In all actuality, I believe that GOOG will have a stock that appreciates more than YHOO and will most likely produce better growth. The moral here is not to try to intermix growth and value metrics because they are not the same.

GL investors

Disclosure: I am not currently long or short GOOG or YHOO. I do have some speculative option plays on GOOG.


Note to all readers: This post and all other posts in this blog are for entertainment purposes only. All of the stocks described are very highly speculative. Investing in the stocks mentioned could produce severe losses if you were to invest in these stocks. None of these stocks represent a recommendation in any way. As an individual investor, you have to assume your own risk. Prior performance is no guarantee of future returns.