Google versus BHP Billiton - Part II

11 October 2007

I wrote recently that in ten years' time, it is conceivable that BHP Billiton could be worth 100 times as much as Google, in terms of market value.

Again, BHP Billiton is the world's largest integrated miner. They sell real raw materials that are in acute demand as the world's population soars past 6.75 billion souls.


Google is an absolutely great company that among other things sponsors the site which hosts my web log. However, Almost no one who uses Google's services has to pay anything for them, with the exception of advertisers. Thus, Google's business is very vulnerable to the vicissitudes of the consumer marketplace, particularly to periods of recession, which predictably come every few years.

BHP Billiton is somewhat insulated from marketplace pressures, as it takes 10-15 years to bring a mine from the exploration to the production stage. Thus, there is a large barrier to entry in BHP Billiton's core market.

By way of contrast, anyone who wants to can host internet services. Thus Google potentially faces competitors who may be as smart as or smarter than the very smart people who run Google.

Google just hit a new intraday stock price high today of $641.41. At that level, the company was briefly worth more than $200 billion in market value. That is against annual earnings of $3.69 billion and revenues that could run as high as $15 billion, assuming business continues at its current clip (always an assumption – never a certainty).

Here is the fact that I found most interesting today. Google is now worth more than Viacom, CBS, Time-Warner and Disney combined (and recall that Time Warner still owns and operates the internet phenomenon of the past – America Online... remember that company?).

I doubt in ten years' time that Viacom, CBS, Time-Warner and Disney combined will be worth less than Google. I also doubt that they will fare so well as BHP Billiton during this period.

However, I will add to my earlier proposition that in ten years' time, Viacom, CBS, Time-Warner and Disney (combined) will almost certainly be worth ten times as much as Google.

That is just how things go in the real world. While Google inhabits an unreal world, companies such as Viacom, CBS, Time-Warner, Disney... and BHP Billiton... conduct their operations in the real world. The next ten years will be hard for Viacom, CBS, Time-Warner and Disney, whereas the next decade is likely to treat BHP Billiton kindly.

I hope that Google does well over the next ten years, as I really like the company. But I am not optimistic that the events of the coming decade will support its present stock valuation at anything close to its current ($200 billion) level.