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July 27, 2011, 8:30 a.m. EDT
By James Altucher
NEW YORK (MarketWatch) "” Four years ago, when people were laughing about Facebook's being worth "up to" $1 billion, I was practically laughed off the set of CNBC when I said Facebook would eventually be worth $100 billion.
I still haven't been proved correct (the last trade on Secondmarket, an alternate trading platform, valued Facebook at $84 billion), but I'm getting close. Facebook has 750 million users around the world, has Microsoft /quotes/zigman/20493/quotes/nls/msft MSFT -1.60% as a tiny (1%) shareholder, and is the leader in display advertising (beating Google's DoubleClick) "” all despite having entered the business what feels like yesterday.
So I have a pretty good gut sense of these things. And I think Google /quotes/zigman/93888/quotes/nls/goog GOOG -1.55% is headed toward $1,500 a share. Here's why:
"¢ Google+ has entered the scene. Everyone knew that Google Buzz wouldn't be anything. And Google's integration of Twitter search results was sloppy and not meaningful (the beauty of Twitter search is the real-time value, and somehow Google forgot that).
"¢ Facebook is going to go public next year. When it comes out, it will be worth over $100 billion. How do I know this? For one thing, it's going to keep growing despite the challenge from Google+. I don't think Google+ is a Facebook killer or a Twitter killer.
"¢ Twitter is a very clean, tight news reader in the worst case, rather than a social-media platform. I can follow the 1,000 or so of the most important people in my worldview and pay attention to their thoughts, links, news, etc. This is very useful for me. G+ does not replace that.
"¢ Friends on Facebook are by mutual consent. This mutual consent makes the value of "friendship" very high. G+ is not by mutual consent. I can add anyone to a circle. I think the differences in the value of friendship mean that people will continue to use and add to Facebook even if they also use G+.
"¢ G+ is more like Twitter "” but with conversations, images, videos, blog posts added to the feed. So this is not a situation akin to Facebook killing MySpace. This is just a new, valuable addition to the social-media landscape.
So what's it worth, and how does it affect Google's stock? (Or Microsoft's or Yahoo's stock?)
Well, we know Goldman Sachs /quotes/zigman/188479/quotes/nls/gs GS -1.21% is going to make sure the investors they got into Facebook at a $75 billion valuation make money. Facebook will go public by mid-2012 at about a $150 billion valuation.
But let's forget all of that. The last trade valued it at $84 billion. Let's discount that back to $50 billion to be conservative.
(It's important to see two other articles I've written about Google at JamesAltucher.com: 10 unusual things about Google and Why are Larry Page and I so different. )
Now simply add that to Google's market cap of $200 billion, because I think within the next year Google+ will be as valuable as Facebook. They have the user base already; it's just a matter of converting them, which they will do, and then monetizing them, which they have the tools to easily do.
So at market cap of $250 billion, add 25% to Google's share price of $600. Or about $750.
Even that's too cheap. Back out Google's $31 billion in net cash, and that leaves you with a forward earnings multiple of approximately 11.50. With 26% year-over-year earnings growth last quarter, Google can be more accurately valued at around 25 times earnings. Let's cut that back a little and be conservative. I don't think it's unreasonable to see Google trading for $1,500 within the next 12 months.
I don't know, honestly, what this means for Yahoo /quotes/zigman/59898/quotes/nls/yhoo YHOO -1.72% or Microsoft /quotes/zigman/20493/quotes/nls/msft MSFT -1.60% . Both stocks are extremely cheap, but in the long run I see them both working more closely with Facebook and Zynga to add deeper advertising relationships, search ads, etc. Let's see what the next moves are from them.
And meanwhile, Apple /quotes/zigman/68270/quotes/nls/aapl AAPL -1.93% , despite all the naysayers, seems to be heading straight toward my prediction of being the first company with a $1 trillion market cap.
But for now, one of the safest opportunities out there is Google.
James Altucher is managing director of Formula Capital, an alternative asset-management firm. He also blogs for MarketWatch and for the Wall Street Journal's Financial Adviser blog. He has written for Forbes, the New York Post, TheStreet.com, the Daily Beast and many other publications. Altucher also is the author of six books. His latest are "The WSJ Guide to Investing in the Apocalypse" and "How to be the Luckiest Man Alive." He is not currently invested in the stocks mentioned in this column.
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