Monday, April 16, 2007

Google Busts a Move Microsoft Still OK

Google (NasdaqGS:GOOG) buys DoubleClick. Microsoft (NasdaqGS:MSFT) is seriously disadvantaged because the Bill Gates team cannot catch up with internal growth, or so pundits and assorted doomsayers content. It boils down to this “In God we Trust all others pay Cash”. Microsoft has a 1.4% dividend yield which seems fairly solid and represents about 28% of net earnings. Google (who is not God) is not even close to contemplating paying a dividend.

Once you cut through the sound and fury of the financial battlefield investors are realizing that for all its vaunted might Google could not currently pay a similar dividend yield of 1.4%. At a share price of say $465 and outstanding shares of 311 million Google net earnings would need to be approximately $7.2 Billion to match the 28% payout.

Google’s net earnings growth has been stupendous but we are talking billions here. Investors will require the billions to be consistent and repetitive. Google has placed two very big bets with youTube and now Double Click. The roulette wheel is still turning and we are far away from consistent and repetitive. Google needs to achieve enormous earnings growth just to match Microsoft’s ability to pay a simple dividend.