1999? Google’s Stock Price and B2C VC investments

Read this skeptical article from Christopher Byron in the NY Post (registration req’d) on Google’s stock price. I see some similarities to the venture capital business.

Here is an excerpt of Byron’s article:
Last week the cheerleading from Google’s proselytizing analysts was all but deafening, as each tried to outbid the other with ever more extreme and bullish forecasts as to where Google stock is headed.

From Goldman Sachs came a 25 percent increase in the analyst’s 12-month “target price,” to $500 a share. More boldly still, Bear Stearns pegged Google’s price at $550 by year’s end, while an analyst at Piper Jaffrey threw caution to the winds and went for a year-end target of a full $600.

And anyone hungering for some good old-fashioned shoot-the-moon forecasting reminiscent of Henry Blodget and the worst excesses of the dot-com era, could have placed his money with Caris & Co. That firm’s Google analyst offered a target price of $2,000 (though it wasn’t quite clear when exactly the wondrous moment would be reached).

What’s wrong with forecasts such as these? Plenty — which is why young Master Blodget is no longer a securities analyst at Merrill Lynch and is trying to reinvent himself as a stock market “commentator.”

But before getting into the details of what is now happening in the world Blodget left behind, first a bit of background to help remind us as to how even well-run, profitable businesses — which Google certainly is — can nonetheless become rocket rides to ruin . . . not just for individual investors, but ultimately for the whole market.

For those of you who don’t remember how we got to where we are now in the stock market — and that would apparently be just about everybody — it was almost exactly six years ago today, on Monday, Jan. 10, 2000, when the airy enthusiasms of the dot-com bull market finally reached the point of total incomprehensibility and even Wall Street’s wisest of the wise began speaking in tongues.

We refer, of course, to that moment, captured for posterity at a Midtown press conference, when Gerald M. Levin, the chairman and CEO of the largest media conglomerate on earth, Time Warner, stepped to the microphones to unfurl what will surely be remembered as one of the most astonishingly stupid business deals of modern times.

Truthfully, I find myself feeling similarly about B2C internet investments these days. Many VCs are rushing into this space again and paying up big valuations for features and deals without traction. I have seen more than one enterprise software VC re-invent themselves into a consumer internet investor in the last 12 months. Feels like 1999 in the VC business as well.

[Originally published on 12th January 2006 by MIchael Eisenberg]