Google Bear Case Update

Please check Hard Data on Google Case for complete picture:

I will apply to my analyses latest analyst projection of sequential revenue growth of 18% Q4 on Q3 and latest Yahoo! Figures, (by the way Technicals weekly at BUY for YHOO, but I am not buying and not engaging anyone to do it in any case.)

So lets look at Google: Total Free Cash Flow for nine months is 1.112. If we will project Rev growth for Google at 18% for Q4 vs 9.3% for Q3 they will make Rev Q4 3.2 bio USD (in line with based on PWC and 41% of market 3.2) Net cash from operations at 37% of Rev 3.2 will be 1.184, if we apply 20% growth for NCFO in Q4 (vs +19% Q3) we will get 1.2 so lets assume NCFO will be in the middle = 1.19. What about Capex? I think it will be increasing dramatically with moving into video: broadband, storage, new blades, electricity. But if we even apply same growth to capex as to Rev +18% (they said it will be bigger then Rev growth, Q3 was +29%) Capex Q4 will be 0.581. So, Free Cash Flow in Q4 will be NCFO-CAPEX=0.61 and total FCF 2006 will be 1.722 If stock will not move from 479.05 we have MC=146.66 billion MC/FCF=85.2! YHOO had FCF 1.267 in 2006 (lower then lowered recently) with MC at 36.67 their ratio is MC/FCF=28.9 If the Google will manage to make even 2.9 EPS in Q4 (+23%) - it is average analyst estimation now in Yhoo (do not forget annual charge for all those "to be expensed option related expenses which they did not account in past Qs) GAAP 2006 will be 9.54. So with GOOG at 479.05 we have company with 2006 est MC/FCF=85.6, P/E=50.2, P/S=13.7 with slowing growth in EPS and Revenue and most important with dramatic compression in FCF. YouTube will bring dilution, much more CAPEX in Video Game and No revenue so far. What is the more reasonable valuation of Google: if we give GOOG MC/FCF=40 (38% over YHOO for leadership and "strength") MC with 1.722 FCF must be 68.88 billion with 306.16 million shares outstanding (YAHOO! finance)...225 share price. When MR Market will figure it out I do not know, but I think that this valuation is unsustainable.