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David Poppe Explains Why Squoia Likes Google Inc.

January 06, 2011 | About:
The newly minted Fund Manager of the Year 2010, Sequoia’s David Poppe has this to say about the high-tech company Google Inc. (GOOG) in a Morningstar interview:



Transcript per Morningstar.com:
Mike Breen: You bought a stock, I believe in the last year, Google, which wouldn't fall into most typical value screens. It’s a well-known company and actually not that expensive. Maybe you can talk about the small position you took in Google.

David Poppe: We are not technology investors, and so it is kind of out of the ordinary for us. It was a big leap into the unknown; but the more we looked at Google, we had some familiarity with the advertising business and marketing businesses, and the more we looked at it, the more it looked to us like a marketing business more than a technology business.

The search engine is extremely powerful. I think it's got about 65% market share. Microsoft has invested several billion dollars in Bing and not really been able to move Google's market share, so it looks like a defensible position to us. And it just creates an enormous amount of value, both, I think for the user, as somebody who does a Google search probably 30 times a day, but also for the advertiser.

It generates just enormous amounts of cash. We might be a little bit worried about how they'll allocate that capital over time; a lot of technology companies like to hold cash forever.

But it's extremely cash generative. The marketing benefit that it gives to buyers is very powerful, and it's not expensive. We looked at it, and it just did not seem expensive, particularly if you back out the cash--or give them any credit for the cash on the balance sheet--you start to get down to actually a pretty reasonable price for something that's still growing. You'll see people who are negative on Google; well it’s only going to grow 15% from here.


GuruFocus data shows that the Sequoia has been in and out Google in a small way in recent years, but at 3Q10 quarter end, it held 223,191 shares, at over 6000 per share, that is a good chunk of money. This is the firm’s holding history in this stock:



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