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Peter Yared is the CTO/CIO of CBS Interactive, a top ten Internet destination, and was previously the founder and CEO of four enterprise infrastructure companies that were acquired by Sun, VMware, Webtrends and TigerLogic. Peter's software has powered brands from Fidelity to Home Depot to Lady Gaga. At Sun, Peter was the CTO of the Application Server Division and the CTO of the Liberty federated identity consortium. Peter is the inventor of several patents on core Internet infrastructure including federated single sign on and dynamic data requests. Peter began programming games and utilities at age 10, and started his career developing systems for government agencies. Peter regularly writes about technology trends and has written for CNET, the Wall Street Journal, BusinessWeek, AdWeek, VentureBeat and TechCrunch.

Many thanks to Bob Pulgino, Dave Prue, Steve Zocchi and Jean-Louis Gassée for mentoring me over the years.

Saturday, January 13, 2007

GOOG >= MSFT

I am the first to agree that all of the continuing Googology (as I like to call Google analysis) is starting to get tiring. But I have been mulling on something for a couple of months and think it would be useful to through it out there. When Google IPO'd and everyone was running around saying it was overvalued, the makret actually had a value set for the leading web portal: Yahoo!. And Google went out the door at half the valuation of Yahoo!. Hindsight is 20-20, but even back then it was clear that Google was going to very quickly outpace Yahoo!.

Today, a lot of people are saying that Google is overvalued. The market, aside from whether it is rational or irrational, has already applied a value for the pre-emininent software company of the microcomputer era: Microsoft's market cap is $300B.

Google cleary is the pre-eminent Internet company of our time, and it's market cap is only $150B. By financial metrics, the supposition that Google will soon equal Microsoft is ludicrous given Google's inflated value relative to earnings; Microsoft's P/E is 26 with $44B in revenue, while Google's P/E is 64 with a mere $6B in revenue.

But the way I see these numbers, Google only needs to double revenue to $12B and maintain its current P/E of 64 to equal Microsoft's market cap. I am not saying that all of this makes sense, but the market has spoken.