An Overview Of 5 Web Search Titans: Yahoo! Inc. (YHOO), Facebook Inc (FB) and More

Price Multiples and Growth

The valuations of these firms are wildly different, as are their historical annualized sales growth and projected annualized earnings growth:

Yahoo! is cheap based on restructuring. Its future price-to-earnings ratio is projected to be 16.9. This is not attractive considering that the average S&P 500 trailing price-to-earnings is about 14. Likewise, AOL appears cheap based on historical earnings, but its forward P/E is 18.9

Google’s stock valuations are high, but they are not as wildly high as those of Facebook. Facebook’s valuations are out of this world. FB shares are trading at an unfathomably high 2854.5 price-to-earnings ratio and a perplexing 12.15 price-to-sales ratio. Investors should stay away from this or any stock at these price multiples.

In contrast, Microsoft is reasonably priced. Its historical price multiples are reasonable, and its 8.7 forward P/E is desireable.

Conclusion

Microsoft is the best stock in the search industry. It is too early to predict how much the Facebook-Microsoft product will threaten Google’s dominance in the search engine industry. However, Microsoft is kind of like a call option that benefits from the success of a partnership with Facebook. However, unlike Facebook, it is attractively priced and would be an acceptable stock, even if this search business goes nowhere.

The article An Overview Of 5 Web Search Titans originally appeared on Fool.com and is written by Bill Edson.

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