Friday, October 21, 2005

Google beats again

So the big three Internet companies have released their Q3 results. And pretty good they were to. Yahoo beat expectations, eBay were in line and Google blew them away.

I don't own Yahoo but having suffered a 7% dive in eBay yesterday I am looking forward to seeing what Google does at the open. The indication are a 10% jump upwards.

eBay is being hammered by short-termism again. EPS dilution by Skype is not nice but investors will not be complaining in 2007 when Skype really starts taking off. This year's share price performance has been poor but the company has kept on growing and it is still my favourite stock. If eBay can make $1 per share next year then the share price should end up between $50 and $60. If Skype continues growing at its amazing rate then the shares could be re-rated upwards.

A thankless writer was recently tasked with taking the bear side of eBay for the Motley Fool. He managed to mumble a few things but really it was very difficult as eBay have one of the best business models known to man. Much better than Yahoo's or Google's in my opinion. eBay should certainly fare much better than the other two in a recession when companies start slashing their advertising budgets. I am clinging on to my eBay shares - they will be more popular soon.

Google just carry on blowing away expectations. After the carnage of the last few weeks it will be nice to have a serious bit of upside in my portfolio. Now that decision taken a few weeks ago to back up the truck and get as much Google as possible is looking good.

I do not know what all Google's intentions are regarding new services and in one sense I do not need to. I know that the management are focussed on user-friendliness and productivity and any new tools they release will be likely to blow away the opposition, just like their maps tool does.

Google are building the Web toolbox of choice. Yahoo may be the portal for content but if you want to do something then go to Google. Personally I find that I do not click on ads when reading content, but when searching I often click on a sponsored result as it is often what I am looking for. So I think the sponsored search model works much better than sponsored content. Google will carry on making their search engine more powerful so that they stay as king of sponsored search.

Having over 90% of a portfolio in Internet stocks would give Jim Cramer kittens and certainly makes for a wild wide. This path is on the up though!

Saturday, October 08, 2005

Microsoft Value

Early this week I dumped Motorola and bought into Microsoft. Here are some reasons why I sold MOT:

1) MOT's dividend is stingy. Dividends are an important part of my mortgage portfolio.
2) MOT's new flagship phone - the ROKR - has been poorly received by the press.
3) Having risen 15% since I bought the share MOT is less obviously good value now.
4) The share price has not gone anywhere in the last 10 years.

And some reasons why I like MSFT:

1) Yield is over 1%
2) Forward PE is under 17 - lower than Coca Cola but with much faster growth
3) MSFT has tons of cash
4) Threats from Linux and Google are fully discounted in and more
5) Share price downside potential is minimal as this stock is already cheap

Microsoft has its problems but one day the market is going to decide it likes this stock again and the price will shoot above 30. The problem is that most of its revenue comes from mature businesses - the Office and Windows products. Growth is slow here but they are a reliable cash cow. The server software market is growing faster and if MSFT can start making traction with its MSN business and with Vista (the next Windows version) out next year 2006 could be the year that the shares start performing again.