I have wondered out loud about Google many times, if you have been following my blog posts. In my 10 Reasons I think Google is going down number ten was the Sheldon equivalency test; what could you buy instead? This is a very important basis for valuation. You would do this when deciding between auto insurance policies, beers, or laundry detergent, so why not a stock purchase? It is all about the allocation of capital resources, price and value.
In my example at the time I used the combined value of Anheuser Busch (BUD) $35B + Federal Express (FDX) $34.5B + Starbucks (SBUX) $28B + Harley Davidson (HDI) $14.5B + Black & Decker (BKD) $6.5B and Intuitive Surgical (ISRG) $3.5B which were equal in value to Google's capitalization of $122B. As I am writing this, Google is presently valued at $127.5B, so we could add a seventh company, perhaps Cummin's (CMI) at 5.5B or maybe another growth stock American Eagle Outfitters (AEOS) at $5.3B. Buying AEOS would even leave us $200M to buy our own hotel resort in Hawaii or the Bahamas ... now that's "tight," as my 10-year-old likes to exclaim.
I am not trying to be glib here; just wondering what y'all been think'n 'bout. Seems to me if you offered Google management these seven companies plus the resort hotel free and clear in an even trade and they did not take it, they would be quite poor managers, or "resource allocators."
So this is why I am starting to think Google should buy Starbucks. It would allow them to convert some of their equity from soft assets to hard assets. See: Going to hell in a hand basket: Hard vs. Soft Assets
Google is capitalized at five times the size of Starbucks. It would be pricey right now, but is there anything much more pricey than Google stock? This could strengthen long-term cashflow and give them an inroads to many foreign markets. The two could cross promote each other. After all, Starbucks is venturing into music distribution, movie promotion, broader food selection, kitchen accessories, etc. Starbucks management could also teach Google management about social responsibility.
It is also a cultural icon. Just as many people are working on laptops as reading the newspaper during their lingering visits to the stores. Mr Schultz, chairman, has been promoting Starbucks as "the third Place", after home and office to spend time. Seems Google has the same thing in mind but thinks that place is cyberspace. Why not merge the two? If they did buy Starbucks, a Seattle-based company, then Microsoft would really start hearing footsteps. As a matter of fact, if Google does not like my idea, then Microsoft should do it with the software giant's own abundance of cash. Microsoft could certainly promote Vista at Starbucks, sell X-Box games (hmmm maybe that's too much) and take advantage of the stores as wireless hot spots. There is plenty of value that Google or Microsoft could find in acquiring Starbucks.
Disclosure: I own shares of Starbucks, Federal Express, Harley Davidson, and Intuitive Surgical. All of the other companies mentioned are on my watch list. I do not hold any short positions in any stock.
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Reader Comments (Page 1 of 1)
7-10-2006 @ 2:28PM
Gordon Anderson said...
I think it would be a mistake. They are advancing on so many fronts in the high tech and internet areas-why dilute their attack?
7-10-2006 @ 2:35PM
Will said...
Conflicts of interest would be bad, too... If Starbucks markets or promotes a product, it shouldn't really be because it's parent company sells it.
7-10-2006 @ 10:19PM
Investorial said...
I hate to be critical, but this has gotta to be the most useless stock rant I've seen as a blog. Is there an award going around at BloggingStocks to see who can be the snarkiest and least relevant?
7-10-2006 @ 11:58PM
david_12 said...
Yeah diversify while you have the money and the time to do it. Starbucks, why not? There's some synergy there. Search engines I think they are a dying breed until some smart pants comes to town. So hurry and diversify, divers... before its too late.
Starbucks is at here too: http://www.GlobalBeautyStop.com
7-11-2006 @ 9:07AM
Treo Man said...
Commenter #3: LEAST relevant? Are you off your rocker? If you think Google is valued appropriately, give me some facts. Bzzztt -- there aren't any.
Snarky - yes. Least relevant - not on your life.
7-11-2006 @ 9:27PM
Investorial said...
Commenter #5. I wasn't referring to whether Google was valued appropriately. I don't care what the answer to that is. BUT what if it isn't valued appropriately, does buying Starbucks matter? What if it is valued approriately? How'd this post add value to an investor looking at Google or Starbucks?
Trying to be witty, trying to be smart, trying to write an article that gets people to think "well, I didn't think of that" is simply crying out for attention, and not contrbuting to anything. This post is a GOSSIP post, nothing educational about it. How does suggesting trading companies to be the right thing? Have people who owned a restaurant ever thought.. well, if somebody offered me a garage business and a junkyard business. I'd take it? How are the Google founders "poor managers" if they rejected Sheldon's thoughts?
Sheldon this, Sheldon that, Sheldon index, Sheldon equivalency test. Now let's take Sheldon's owned companies and Sheldon's watchlist and put it up against Google. Doesn't matter whether it's valued appropriately or not. Such information is simply noise.
7-11-2006 @ 10:23PM
Redmondian said...
Nah - that's a ridiculous idea! Gates nor Page (or Brin, for that matter) would be stupid enough to invest in a damn coffee shop. Companies should remain strict on what they choose to provide consumers and although diversification is good for companies, a technology (or media) company should remain strictly that otherwise they typically will compromise the quality of one product for another.
Admittedly Google Inc is overvalued but so too are many other companies. Is General Electric really worth as much as it is? Same as Yahoo!. Should Page and Brin be worth a total of US $25.7 billion? I just hope that as long as Gates and Ballmer are at Microsoft and Page, Brin and Schmidt are at Google they'll be selling software and ads not lattés and capuccinos!
7-12-2006 @ 8:38AM
Jay Anderson said...
I agree totally with the Google "is sickly overpriced" concept, I don't see anywhere enough hard assets to hold a real value for much longer.
Disclosure:I don't own it or want it, short or long, I'm staying away.
7-12-2006 @ 9:44AM
Sheldon said...
To my critic who does not really "hate to be critical". Almost everything you stated indicates great misunderstanding. The purpose of my commentary is to send a message to those that are supporting Googles price at it's current level that they are taking undue risk and to promote a dialogue which has been accomplished. I think that if investors are taking the risk they should do it with their eyes open and consider some things that they may not have. You stated you do not care about Googles valuation well than you missed the point of the article totally. You also missed the point about Google needing to solidify it's place in the world by attaining "hard" assets that in the long run will make it a survivor. If you do not think Starbucks is a good match (I stand by my comments)than what is? This is also a message to Google management that they should reflect on their good fortune and take steps to attain tangible long term value. If not Starbucks than some other proven compatible enterprise. By the way buying a "Garage" might be a good idea if that garage was profitable, well managed and could be integrated with other assets and attained at the right price. Why should Google invest any differently than Warren Buffett or you?
You make light of being witty and getting people to think...??? GETTING PEOPLE TO THINK is the #1 point of all my blogs and being witty well I can't help that...better than having a chip on my shoulder. I could write a disertation on what you are missing but I wll let it rest for now.
To those of you that may agree that I personalize my thoughts to much or should not make the disclosures, this is necessary. AND all comments, positive or negative are more than welcome because that too is what blogging is about and who knows maybe people will do some more thinking.