New York Times on Google IPO

“Unlike many companies that went public at the height of the Internet bubble, Google, the dominant Web search engine, is already profitable. And it appears to have strong competitive advantages.

But the company also has question marks. Its management is, for the most part, young and inexperienced, and the registration statement for its offering, filed with the Securities and Exchange Commission, is long on platitudes (one section begins “Don’t Be Evil”) and short on specifics.”

Actually, it’s a better piece than that excerpt would suggest.

“Investors will probably flock to Google”, it continues, “which has displayed astonishing growth and profitability during its six-year history, analysts say. Last year, the company had $962 million in sales and $106 million in profits.

But that significantly understates the company’s true profitability, because Google had unusually high tax and option expenses last year. In reality, it appears to have generated $570 million in pretax cash profits last year. That is still more than Yahoo, but Google is also spending more heavily than its chief Internet rival on new computers and equipment.

Martin Pyykkonen, an analyst at Janco Partners in Denver, said he thought Google and Yahoo ought to be valued comparably. Both companies have search engines, although Yahoo also provides a broad range of services like personal ads and an instant messenger. Yahoo’s sales were higher than Google’s last year, but Google is growing faster and has higher margins. ‘They look an awful lot alike, if you look at the numbers,’ Mr. Pyykkonen said.

Hmmm… Interesting that much of the financial comment compares Google to Yahoo! In practical terms, I’ve never thought about them in that way. In fact, I don’t see them inhabiting the same universe. And I’ve never used Yahoo! for anything. But then, I’m a user, not an investor.