Google!

Google is among a handful of companies that have made its stockholders trillions of dollars in gains since going public.  A share which you could have bought for a (split-adjusted) price of $2.51 at the end of 2004 could have been sold for $289.95 at the end of 2025.  That is a total return of 11,452% which works out to a Cumulative Annual Growth Rate  (CAGR) of  25.4% return every year for 21 years.  

The figure shows graphically some important financials about each share of Google stock over Google's 21 year experience as a public company.  Plotted are Price per Share, Book per Share, and Earnings per Share.  The plot is "semi-logarithmic" meaning that while the x-axis shows the years from 2004 through 2025 spaced evenly (linearly), the dollar values plotted on the y-axis rise exponentially, with each major tick on that axis representing a dollar value 10X higher than the previous tick.  The logarithmic y-axis allows us to show particular annual growth rates (CAGRs) as straight lines on the plot.  

Each series of data is "smoothed" by fitting it to a best fit straight trend line.  The exact CAGR for that fitted trend line is indicated on the graph.  Because the best-fit trend line for Price, Revenue, and Earnings are nearly parallel lines on the plot, they are all arising from CAGRs that are nearly the same in value, all three are fitted by about a 23% CAGR.

That the values of a share price, the revenue per share, and the earnings per share all grow at about the same CAGR makes sense if one considers the fundamental purpose of buying a share of stock is to purchase the future cash flows associated with that stock.  The Earnings/share each year are the cash flows the company has earned associated with that share, so it makes sense that as those earnings grow at about 23% CAGR, the share price would grow at about 23% CAGR.  

That the Revenue/share also grows at about 23% CAGR means that the profit margin of Google has not changed much over the entire 24 year period shown.  In fact, the profit margin for the trendlines shown has risen smoothly from 15.1% in 2004 up to 16.5% in 2025, so the profit margin has trended slightly upward over time.  

If the purpose of owning a share of stock is to own all the earnings over time associated with that stock, then the ratio of annual earnings to stock price is the rate of return of the stock investment.  For the trendlines shown in the figure for Google, The return of the stock in 2004 is 3.2%, and over the 21 years to 2025, that return has slowly fallen to 2.8%.  So over time, the purchasers of Google's shares have been willing to pay slightly more for each dollar of cash flow.  The reasons for this are probably many and varied, but one likely reason is that, over time, as Google has consistently grown the amount a share of stock earned by 23% per year, the people buying the shares have been more and more confident that future earnings would continue to go up reliably, and so have been willing to pay a little more for that growing stream of earnings as their confidence increased.  

What will Google do in the future?  You may have heard that the past performance of a share of stock is no indication of how that stock will perform in the future.  In fact, past performance of Google stock has historically been an excellent indicator of how the stock would perform in the future, hence the straight and parallel trend lines stretching out over 21 years on the figure.  Does that mean Google is guaranteed to keep going up by 23% per year?  No, it does not, there are no guarantees, especially about the future.  

An aspect of Google stock we will not cover here is that from 2018 through 2025 Google spent nearly $340 billion to "buy back" nearly 1.7 billion shares of its stock. But that it is something to talk about in a different blog post, perhaps.