Google, Yahoo and stock prices

I’m pretty much clueless about the stock market (unless watching Jim Cramer throw around chairs counts for anything). I guess that stuff simply skipped my DNA. So if the following sounds to you like a 2nd grader asking stupid stock questions, you are absolutely right…:

With all the Google stock mania going on, alongside the poo-pooing of Yahoo as being a terrible investment, I’m mystified about one thing:

Isn’t stock investing all about the future financial growth of the company?

Google is an incredible company, no doubt about it. Their revenues are beyond staggering. One of the main reasons their numbers are so great is that they figured out how to monetize a search query and optimized and optimized and optimized. And optimized.

They’ve done such an amazing job with optimizing revenue-per-query, that I wonder if there are any other big optimization tricks up their sleeve. If not, it seems inevitable that revenue-per-query will flatten or at least its growth rate will drop sharply. When that happens, overall *revenue* growth will result from overall *query* growth. This can come from 2 sources: New internet users, and/or converting users over from competition. Both ain’t exciting growth prospects. [1]

Yahoo on the other hand has done a terrible job at monetizing their search queries so far. Their ads were too long, the placement was by bid price and not by overall yield, the relevancy was questionable, etc, etc, etc.

But that’s all part of the past. At this point it seems like Yahoo has all the optimization growth in front of it, while Google is basically done with most of its per-query optimization growth. With Yahoo’s new Panama system being soft-launched these days, it seems like they’re focusing exactly on squeezing the hell out of each query’s revenue potential.

So, if stocks are all about the *future* financial growth prospects of a company – Is it terribly stupid to go long on Yahoo, and short Google? I’m surely missing something that the rest of the market is seeing.

[1] Of course YouTube might start generating gobbles of money, etc. That might be. But today Google is basically a 1-trick revenue pony called AdWords (AdSense is mostly a money wash because of the low margins Google is operating it on).