06/11/2004 12:00 am EST
"Searching for alternative Google plays?" asks Bambi Francisco. The Internet analyst for CBSMarketwatch.com notes that many money managers are averse to entering the auction for Google’s IPO. Here, she look at other ways to play this long awaited offering.
"If you’re looking for an alternative way to play the Google IPO, you're not alone. Many fund managers I've spoken with recently are considering sitting out on the Google auction process for fear the price they'd be receiving isn't much of a discount than what retail buyers would get. As such, they are finding alternative investments to play the positive sentiment surrounding the IPO. To be sure, some expect the Google IPO to be the top of the Internet market and they look to short most Net shares. But I'd argue that Google planned its IPO well and this offering may just be a catalyst to unleash pent-up demand. Here are some of my top Google alternative plays:
"Yahoo (YHOO NASDAQ) is the most comparable to Google, as it relies on the same paid-per-click advertising dollars. If Google garners a premium multiple to Yahoo, then investors will opt to own the latter. One significant reason for that would be that Yahoo has a proven management team, which should warrant a premium, in my view. Yahoo will also be very cash rich by 2005, as estimated by Citigroup Smith Barney's Lanny Baker, one of the brightest Internet analysts I know. Baker estimates that Yahoo will accumulate $4 billion by the end of next year. eBay (EBAY NASDAQ) is a powerhouse, and as a proven leader that works during boom years and recession, any euphoria over Internet stocks should spill over to this stock. But one asset that may be considered undervalued should Google go gangbusters is Time Warner's AOL unit. According to a JP Morgan estimate, Google accounts for 33% of AOL's advertising unit revenue. Time Warner (TWX NYSE) shares may not reflect this value. At the end of April, Time Warner traded at ten times expected 2004 cash flow, according to Smith Barney. This compares to an average multiple of 22 times for a varied group of Internet media and commerce stocks.
"Ask Jeeves (ASKJ NASDAQ) and InfoSpace (INSP NASDAQ) may do well as these are companies that act as distribution platforms for Google's advertisers. The thinking has been that as Google's advertising network grows, and as prices these advertisers pay rise, the revenue Google shares with its distribution partners rises as well. CNet (CNET NASDAQ) is also an interesting play, mostly because the company is breaking out of its technology image and educating non-tech advertisers that technology information and news and online games isn't just for the tech savvy or the geek. Technology is a lifestyle, they'll sure to be touting soon. This is a smart move. The younger generation won't be learning about new gadgets the way we do. They'll be seeing the world through a different paradigm—an always on, always connected, and an always my preference technology paradigm. That's why CNet wants to capture the younger generation as they grow up with the technology/Internet paradigm. CNet recently hired Joseph Gillespie to be chief marketing officer. Formerly interim CEO at TechTV, Gillespie helped the cable channel broaden its ad base beyond the typical technology company. To the extent that CNet can attract that audience—it's targeting 18-to 34-year-old males—it could also drive traffic to its ad links, which are provided by Google. Currently, Google accounts for 12% of CNet's total sales."