Google vs. Yahoo!

One share of Google costs just over $500.00 (as of Friday's close). I thought I would try to compare Google and Yahoo! to see which is the most expensive based on the conclusion of Friday's trading. Now, I don't contend to be the first person to compare these two stocks...they are companies in almost the exact same business...but this is an up to date comparison of the two stocks.

First I would like to say that both companies make their money on internet advertising. It's impossible to predict how the world will change, but as of right now, I think most people would say that internet advertising is a growing business. Google and Yahoo! are by no means alone in this business, Microsoft is in the fray with MSN, and several other companies are in the mix as well, but Google and Yahoo! have by far the largest market share.

Obviously we can't value one stock over another based on economic factors because they are in the same sector, and do almost the exact same business.

Based on past performance, there has been a lot of question as to how much more Google can grow. The stock is, after all, at $500.00. But it also looked expensive at $200.00, at $300.00, and so on. It has consistently just gone up. Google is currently trading at 40.63 earnings. Of course, it doesn't matter what Google is worth today, but what it will be worth going forward. Google has a forward P/E of 25.63. Its PEG is less than one (0.96)! Because companies are valued based on their expected growth, this is the most important statistic. Of course, analyst could upgrade or downgrade the stock, which would raise or lower it's value.

Amazingly, Google has about 18.5B in total assets versus about 1.5B in debt! Interesting however, is Google's cash flow statement, which seems to say that although Google brought in about 3.5B in operating activities, and another 3.0B in financing activities, but they seem to have lost about 6B in investments if I am reading their page correctly. This isn't particularly alarming, just because the company seems to have such a high net worth.

Yahoo! closed at $23.54 (Friday again). That's quite a difference in the price of shares, isn't it? Despite it's inexpensive seeming share price, Yahoo! does not look to be in nearly as good of shape as Google. Yahoo! has a forward P/E ration of 41.30 and a PEG of 2.24. As a general rule, anything over 2 should usually be sold. This alone tells us that Yahoo! is considerably more expensive than Google. Yahoo! has about 11.5B in total assets, versus about 2B in debt.

So let's get this straight, Yahoo! is worth less, has more debt, and is more expensive in comparison to it's forward looking estimates? Looks like Google wins this battle outright.