Google’s quarter wasn’t that bad. And one point that popped out of that Time story was Larry and Sergey waving off a tiny site tweak that would have generated $80 million of incremental revenue because they thought it might annoy some people.
If the stock drops much more, it will be the Google guys who get annoyed, and if they get annoyed, they will presumably pull the trigger on a few of these short-term revenue accelerators. Which could leave folks banking on an ongoing deceleration feeling woozy for a while?
At $345, the company’s enterprise value has dropped to around $100 billion, or 35 to 40 times 2006 estimated free cash flow of $2.5 billion to $3.0 billion. That’s getting closer to a 30-40X range that seems reasonable based on what we know today.
Is there more potential downside? Absolutely. More deceleration could knock another 25% off the multiple, and this year’s accounting changes and investments could make even $2.5 billion of free cash flow challenges. And that’s not even mentioning what would happen if the company was whacked by click fraud.
But there also seems to be some dry powder on the revenue side, at least over the short term, and I, for one, wouldn’t want to bet that the company will never decide to use it.