There’s no such thing as a sure bet in the investment world. The best we can do as investors is consider all of the facts available to us, meditate on those facts, consider possible futures, and then read ourselves to see if we are comfortable buying a piece of a certain company or not.
For myself, one trend that I am comfortable investing in right now is the Internet. Just 20 years ago, if I needed a recipe for something, I had to find it in a cookbook; if I had to write a paper, it probably involved long hours at the library.
Without a doubt, search engines are some of the most popular websites out there. Take a look at top 20 sites in the world, and you’ll see what I mean.
| Rank | Website | Unique Visitors per Day |
|---|---|---|
| 1 | Google (NASDAQ:GOOG) | 1 billion |
| 2 | Facebook (NASDAQ:FB) | 1 billion |
| 3 | YouTube | 824 million |
| 4 | Yahoo! Inc. (NASDAQ:YHOO)! | 462 million |
| 5 | Baidu (NASDAQ:BIDU) | 292 million |
| 6 | Wikipedia* | 311 million |
| 7 | Windows Live | 205 million |
| 8 | Amazon | 168 million |
| 9 | QQ* | 183 million |
| 10 | 142 million | |
| 11 | Blogspot* | 153 million |
| 12 | Google India | 111 million |
| 13 | Taobao | 106 million |
| 14 | LinkedIn (NYSE:LNKD) | 84 million |
| 15 | Yahoo! Japan | 84 million |
| 16 | Bing* | 97 million |
| 17 | MSN* | 105 million |
| 18 | Google Japan | 72 million |
| 19 | eBay, Inc (NASDAQ:EBAY) | 69 million |
| 20 | Yandex | 67 million |
Sources: World Bank and alexa.com. *Sites are ranked by number of total unique visitors and pageviews over one month. The list provides the number of unique visitors on Feb. 19, 2013. Thus, though Wikipedia, QQ, Blogspot, Bing, and MSN have more total visits, they are ranked lower due to the total number of unique visits.
I believe that investing in search engines — and the cash they produce through advertisers — is a pretty solid bet. This is especially true when you consider that well over half of the world’s population still doesn’t have regular access to the Internet.
Of these 20, I would say that four of them are as close to pure search plays as you can get: Google, Yahoo!, Baidu, and Yandex. Though Microsoft Corporation (NASDAQ:MSFT) has a hand in a number of companies mentioned above, and Bing is its primary search engine, the company is fundamentally different than the others.
So the question is: Of these four, which is should you buy?
First, let’s just look at the numbers
There are many ways to approach this question, so I’m going to start with the most direct form possible: simply crunching the valuation numbers.
| Metric | Yahoo! | Baidu | Yandex | |
|---|---|---|---|---|
| Market cap | $263 billion | $25 billion | $32 billion | $8 billion |
| 3-year average revenue growth | 28.5% | (10%) | 78% | 53%* |
| 3-year average EPS growth | 16.5% | 84% | 97% | 45%* |
| P/E | 25 | 6.5 | 19 | 32 |
| P/FCF | 20 | 16 | 19 | 31 |
| PEG Ratio | 1.3 | 1.5 | 0.6 | 0.7 |
Sources: Yahoo! Finance, Fool.com, SEC filings. *One-year results due to only being a public company since 2011.
One look at this list points out several important distinctions between these companies. Among the most important:
1). Google is by far the biggest of the four.
2). Yahoo! has somehow been able to increase profitability while losing revenue.
