Google vs. Nortel

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By Mark Evans | November 1, 2007

So, Google shares cracked through $700 yesterday - giving the company an astounding market capitalization of $220-billion. For anyone still interested in fundamentals, Google is trading at a market cap to revenue ratio of 15.

Here’s the chart from Google Finance:

So, just for fun - and please no comments about how I’m unfairly comparing apples to oranges - let’s look at Nortel’s valuation during the telecom boom.

At the peak, here’s are the essential Nortel facts:

Stock price: $124.50 (Canadian, which was worth US$0.67 at the time)
Marketing capitalization: C$375-billion (or US$250-billion)
1999 revenue: C$22-billion (US$15-billion)
Market cap to sales ratio: 16

(Note: the revenue figures are what Nortel reported in early 2001 as opposed to the adjusted results in the wake of the accounting scandal)

What’s the numbers show is Nortel (circa-July 2000) and Google (late-2007) have a lot of common from a sales and market capitalization perspective. When Nortel was trading at $124.50, many investors believed the sky was the limit for the telecom equipment market. There was strong demand from carriers, including a variety of well-financed start-ups after the U.S. telecom market had been deregulated. Amid this euphoria, few people could have predicted the beginning of the end would emerge in early-2001 when orders suddenly started to evaporate.

Compare with Google today. The online advertising market is roaring ahead, and Google is reaping the benefits as the Web’s biggest advertising entity. Many investors obviously believe the sky is the limit for online advertising, which still only accounts for about 5% of the total advertising market.

Again, I’m making no correlation between Nortel and Google but it is fascinating to see the similarities.

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