Oh Google!

The hardest thing for a man to do is simply to live with grace and dignity. He is always imagining that his wife is having an affair with the plumber, that the Muslims want to cut his throat, and that he can get rich without working. The next thing you know, he is making a fool of himself.

In his private life, he merely makes his friends embarrassed for him. But in his public life, he poses a threat to everyone. For when he looks in the mirror, he never sees himself as the pathetic, ignorant oaf he really is. In fact, he doesn't see anything not to like. And he imagines that if everyone could be as he is - with his tastes, his virtues, his political philosophy and his religion - the world would be much improved. And so he gathers together with his fellow delusionals and bubbles up what he does like and declares war on what he doesn't; and another great public spectacle is soon underway.

Google's shares went over $500 yesterday.

We thought Google was a sell when the shares were $200 cheaper. We remember mocking the editor of Kiplinger's magazine for buying them. It looked to us as though he was just going along with the mob, hoping to get rich. We said the shares were overpriced at $250. But now look who's laughing!

Google is one of only two companies we can think of whose names have become verbs. 'Google it,' is an expression frequently used today. 'Xerox it,' was one that was common a few years ago.

Xerox was one of the great success stories - of yesteryear. And that's the trouble with new technology. There is always newer technology. And the wunderkind of today's stock market inevitably grow up...mature...and die.

And here's the trouble with the old technology of the human brain: Now and again, people think time stands still.

"I do not think there is a bubble about to burst - not even close," said Benjamin Schachter, an analyst for UBS Securities. Schachter thinks Google will stay at $500 for a long time. "Over the long term, Google continues to outmaneuver all of its competitors. I think this is one of the most important companies on the planet."

But let's look at Google. Is it really a technology company? Maybe not. It earns its money from what looks like the publishing business - advertising. People go online and Google for something. Google knows what they are looking for. It can target its advertising, and focus readers' attention on new products and services just when they are most keen to buy
- when they're looking.

The technology behind it is the computer program that connects seekers to the sought after. We don't know anything about it, but we can imagine that there are many other smart young people figuring out new and better computer programs to do this.

So, let's look at Google as a publishing business. Roughly, it has a market cap of more than $150 billion, revenues of $10 billion, and profits of $2.8 billion. A very nice company...but what is it worth? If you project recent rates of growth into the future, it could be worth $500. If profits were to double...and double again...it would be trading at a reasonable multiple of earnings. But if earnings don't go up 300%, it is over-priced.

What's more, as a publishing business, Google has a major flaw - it has no firm connection with its readers. People do not think of themselves as 'Google customers,' the way they often identify themselves with a local paper, a newsletter, a magazine, or even a website. For example, many people are actually proud to be New York Times readers (if you can believe it). Google is largely invisible, like a pane of glass. It does not 'own' its customers. Instead, customers will desert it - as they did Yahoo - as soon as something newer, better, and faster comes along. Then, Google will be yesterday's news.

That may be happening already. From the second quarter to the third quarter, Google earnings grew 11%...or only two-thirds the rate of the same period a year ago. Earnings growth is slowing down, in other words. Just like it always does with new technology companies. When investors realize what is happening...they are likely to desert Google too - and buy into the next hot thing.

Bill Bonner is the President of Agora Publishing.  For more on Bill Bonner, visit The Daily Reckoning.