Google's stock takes a dump

[Deadly Crescent Kick]

the bottom was bound to drop out sometime...

Google: Party over
Search engine leader's sales meet expectations but earnings miss targets; stock clobbered.
By Paul R. La Monica, CNNMoney.com senior writer
January 31, 2006: 7:01 PM EST



NEW YORK (CNNMoney.com) - It had to end some time.

Before Google, the iconic search engine, reported its fourth quarter results Tuesday, the company had crushed Wall Street's sales and earnings estimates in every quarter of its short history as a public firm. That streak is no more. And Google investors appear set to punish the stock on Wednesday. Shares plummeted about 12 percent in after-hours trading Tuesday.


So long $400? Shares of Google have been on fire since the company's IPO in 2004. But the stock looks set for a nasty tumble after missing earnings estimates for the first time.


Get ready for a dip. Google's market value could take a $15 billion hit after the company's latest earnings report.





Things change fast online--even for GOOG
What Livedoor can tell us about where Google's stock price is going. (Read column)



Google reported fourth-quarter sales, excluding traffic acquisition costs (TAC), the revenue that Google shares with advertising partners, of $1.29 billion. That was in line with expectations. But John Aiken, an analyst with Majestic Research, an independent research firm, said earlier Tuesday that Google would probably need to report sales of $1.37 billion to impress Wall Street.

And more alarming to investors, the company posted earnings per share, excluding the effect of stock options costs and research and development-related charges, of $1.54 a share, well below analysts' consensus estimates of $1.76 a share.

However, during a conference call with analysts, Google chief financial officer George Reyes said that earnings took a hit largely due to a larger than expected tax rate that Google had to pay.

The company said its tax rate for the quarter was 41.8 percent, up from its expected level of 30 percent, due primarily to higher expenses allocated to international operations. Some analysts pointed out after the call that if Google's earnings were taxed at the 30 percent level, profits would have come in between $1.78 and $1.82 a share, ahead of consensus forecasts.

"Google and Google's management is viewed as being more mortal today then they were in prior days. I'm disappointed that there was no communication about the higher tax rate. That led to confusion," said Clay Moran, an analyst with Stanford Group.

Reyes added that Google's sales were hit by unfavorable currency comparisons. Revenue would have been better if not for a strengthening dollar, he said.

Still, shares of Google (Research), which rose 1.4 percent in regular trading on the Nasdaq Tuesday, plunged in after-hours trading following the release of the earnings and did not recover much during the conference call. Based on that drop after-hours, the stock could see its market value plummet by nearly $15 billion at the opening bell on Wednesday morning.

The stocks of several other Internet companies fell after-hours as well, including Google's top rival Yahoo! (Research), online auctioneer eBay (Research), Internet retailer Amazon.com (Research) and Net conglomerate IAC/InterActive (Research).

It's important to note that Google didn't necessarily have a bad quarter, however. Sales nearly doubled from a year ago while net income surged 82 percent as demand for online advertising, particularly sponsored-search marketing, remains extremely robust .

Chuck Richard, a vice president and lead analyst with Outsell, Inc., a research and advisory firm for the information industry, said that investors should not interpret Google's earnings miss to mean that the online advertising market is cooling. "The outlook for Google is still strong. The miss is not significant," Richard said.

Other analysts defended Google as well.

"The earnings shortfall was primarily due to a one-time adjustment to the tax rate," said Marianne Wolk, an analyst with Susquehanna Financial Group. "The results were generally in line with expectations but the market has become accustomed to Google doing substantially better than expectations so that's why you're seeing disappointment."

Moran added that the stock's drop was an overreaction. "In reality, the business trends remain strong. There's no change to the Google story," he said.

And Google chief executive officer Eric Schmidt expressed optimism about the company's results. During the conference call, he said that the company was very pleased with the company's results and noted that Google sees tremendous opportunity for growth going forward, particularly in international markets. Google said that revenues from outside the U.S. accounted for about 39 percent of total sales for all of 2005.

Schmidt also stressed that Google would continue to spend heavily on research and development in order to remain an innovative company. "We invest with a long-term view of the business. We are going to make some really big bets," he said.

Street may have to dial back expectations
The company has done a lot to broaden out its product line during the past few months. Google has recently unveiled a new video store where consumers can buy downloads of NBA basketball games as well as shows from the CBS network. Google also is testing a classified ads service called Google Base and recently announced an acquisition of a private company that will allow Google to place radio ads.

Google also announced a deal in December to acquire a 5 percent stake in Time Warner's AOL Internet unit for $1 billion. AOL is Google's largest affiliate customer. (Time Warner (Research) also owns CNNMoney.com.) During the conference call, Google co-founders Sergey Brin and Larry Page both stressed that Google will continue to roll out new features on a regular basis.

But since the stock is up more than 400 percent since the company went public in August 2004, Google clearly needed to beat the Street again to justify its lofty price. Based on Tuesday's closing price, Google traded at 50 times 2006 earnings estimates, a significant premium to the overall market. Several analysts had thought that Google was worth it because of the company's growth prospects.

Google's earnings miss is the latest in a string of bad news for the company.

The stock has fallen nearly 7.5 percent during the past two weeks due to concerns about how strong Google's numbers would be in the wake of similarly disappointing results from Yahoo! (Research), a couple of analyst downgrades to "sell" citing the stock's valuation and controversy surrounding the company's refusal to share search results with the U.S. government regarding a court case about legislation meant to protect children from online pornography as well as Google's decision to allow the Chinese government to censor search results on a Google site in China.

Some analysts have added that Google will soon face more significant competitive pressure from Yahoo! as well as Microsoft (Research). Microsoft's MSN Internet unit is set to launch a new online search tool for advertisers soon called adCenter this year. adCenter will allow advertisers to bid for keyword searches based on specific customer data such as age, gender and geographic location.

Analysts also asked Google during the conference call about why growth in Google's revenue from advertising partners grew at a slightly lower than expected rate. The company said that Google's sales from its own portfolio of Web sites increased by 24 percent from the third quarter while sales from Google's network of advertising affiliates increased by just 18 percent from the third quarter.

And since Google does not provide earnings guidance, it seems likely that analysts will now lower their first quarter and full-year 2006 forecasts. That could put further pressure on the stock. Analysts currently expect Google to report sales of $1.46 billion and earnings per share of $2 for the first quarter and revenue of $6.56 billion and a profit of $8.79 a share for all of 2006.

For a look at why some analysts still think Google is a buy, click here.

Investors boo Yahoo! For more, click here.

Analysts quoted in this story do not own shares of the companies mentioned and their firms have no investment banking relationships with the companies.

The reporter of this story owns shares of Time Warner through his company's 401(k) plan.

http://money.cnn.com/2006/01/31/tech...n=money_latest

[theMerciless1]

i almost bought @ like 400

I'm honestly surprized it took this long for a couple of reasons:

1) Stock Price is based upon the expectation of future dividends - always has been this way, always will. There is no exception to this rule. Price speculation is merely a logical next step.

2) Dividends come from earnings.

3) Google only has 1 real source of income - internet advertising. This makes it inhearantly risky. They are trying to break into other forms of advertising (conecting their clients to TV, Print, and Outdoor Ads) but this is merely in the beginning stages of development.

4) US officials are considering regulating Google as a public Utility. This makes Google stock even more risky.

So in conclusion:

What the hell was all the hype around google about? They missed their targets for a single quarter and only now do people realize the inhearant flaws? There must be something I'm not seeing.

Edit: It seems the price is rebounding.

[ur my bitch]

Google has never paid dividends, so where did the expectation of future dividends comed into play as the major factor that lifted the stock price? Google was priced as it was for a number of reasons. Being best in class, hitting their numbers for 12 straight quarters and also based on the P/E ratio for stocks in it's sub industry, such as Yahoo. Based on Yahoo P/E, Google was a $450 stock at it's cheapest.

The other hype around Google was the revenue potential and different markets they are trying to tap for revenue.

One thing about MOST companies and earnings estimates (big name companies especially). If they onl hit the Mean # for EPS, they typically go down a small % in trading price. IF they consistently exceed, then one day miss, that is huge. Regardless of the reason. Googles earnings falling below were froma one time tax expense, but the problem was the sell side analysts didn;t think it was enough even with the tax charge.

Looking at the technical analysis of Google, it seems to have closed down, but with inidcators of a reversal. If I was a buyer I'd buy here and if I ws a seller I would wait to see. Ther has already been one reversal sequential indicator of a price reversal and the countdown has started. It has also hit the low end of the Bollinger bands with a std deviation of 2/-2 and could be headed up.

Looking at the street revisions and estimates, there have been an even number of upward revisions to downward EPS revisions, so that's a tough call. I see price recommendations ranging from $433 - $513, but I also see a couple of firms saying a price target of $315 id their bogey. Forward EPS are all over the place, but all have EPS for next year higher than this year, so Google needs to step up with their earnings in '06.

Google is a good company and the hype I think, was justyfied. I think amny buyers were hoping for a stock split. However, it may be the end of a great ride for Google, but I don't see it gowing too far down in the near future.

[theMerciless1]

train, waht are you doing w/ sirius? sitting or buying more?

The hype was justified?

You are talking about a company that has never paid a dividend, and unlike Amazon.com doesn't even have a more or less traditional business model (retail). Google posses the threat of having its entire revenue source stripped away from itself, and at the speed at which the internet changes, they could be blindsided. Internet advertising is shown to loose its effectiveness much quicker than other forms of ads. Who clicks those little green boxes to the right of the search results anyways?

[ur my bitch]

lots of companies don't pay dividends. Plus, Google has only been trading for 17 months, too early to judge them based on dividends. Amazon.com has a lot more overhead in shipping, inventory and retail costs. Amazon isn't a brick and mortar, but at least Google doesn't have the overhead of an Amazon.

The sector has a 32% earnings purity, Google has 100% earnings purity. Google's forward estimates are a $7.94 mean for 2006. At a P/E of $50, that makes it a $397 stock. Historically, GOOG has traded above a $65 P/E

I think Google is going to take some more hits, but I still tink there may be a chance for it to pick up again. Lot's of Short Interest right now too, so teh shorts have to cover eventually.

Google also has other revenue sources besides simple advertising that they are working on, and they have many options. Alsom they are in China, and that is huge, being able to recognize revenue over there. That was a god business bet and sometimes first to makret is all it takes.

Zev...I sold Sirius long ago. I sold it over the summer I think whenit peaked during a day of good news. I got into NFI @ $28 and it has been trading between $31-$32 lately, plus it pays a 14% dividend, I also bought TWTC at $7.70. I fucked up and didn't sell when it broke through $11, but targets are $12 and I will sell soon. I also still own and love EQIX. they report earnings Feb 8th, so my fingers are crossed for what I hope will be a positive earnings surprise.

I have my eye on a couple other stocks. One is hovering around $119, but I think it can be a $200 stock. Lots of profit taking today, plus the company is way too conservative with guidance, even though they had a 94% positive earnings surprise.

I also own TOC in my ESOP, so i take some down every quarter at a discount. Glad I sold SIRI when I did. That shit bag is sitting in the low $5 now.

Originally Posted by ur my bitch

lots of companies don't pay dividends.

If they don't currently, they plan on it in the future - it's the sole reason a stock has value (other than liquidation).

Google also has other revenue sources besides simple advertising that they are working on

Key words here are "working on."

It's entirely possible that Google could blow up and find it's niche. But it's also possible that Google could dissapear almost entirely within the next few years. Internet advertising is notoriously risky. And this risk should be reflected in the price.

Google is valued higher than Verizon, Dell, Hewlet Packard, Honda, Daimler Chrystler, Walt Disney, and many others. None of these companies is going to just dissapear tomorrow, or have its sources of revenue taken from them. For google, this is a possibility. These companies are inovative, and making money. They are in an entirely different league from Google, who is hopelessly dependant on an uncertain revenue stream.

I think Google is still overvalued.

[ur my bitch]

I don't think Amgen has ever paid a dividend, and they are still highly valued. Also, dividends are the sole reason a stock has value for whom? Maybe for some plain vanilla Mutual fund portfolio manager, or the average Joe investor. However, with the multitude of Hedge Funds out there today, momentum, price shifts and volatility are the key to making money. Some of these Hedge Funds have a 100% turnover rate every month. Hedge Funds are the big swinging dicks in the market place, these guys influence price like no others and their returns are well above any benchmark or plain vanilla.

Google may be over valued, and I think there is some more price dropping up coming. But, I do not see Google going away. GThey are veyr innovative and were the first to do what they do they way they do it. They took Boolean searching to a new level. Also, Google is one of the most trafficed website there is. Gmail, people "Google" people. The company became a verb. They aren't going anywhere.

Disney has had some very deep trouble as has Verizon, HP (big time) and Daimler Chrysler. Also, when you compare valuations, you want to compare valuations to its peers, not just any random company. None of those comapnies you mentioned are Google peers, nor are they even in the same sector, let alone industry. So, when you compare valuation, you need to look at how Yahoo! is being valued. What's their P/E, P/B (price to book), you need to look at insider transactions, sector movement, fundamentals, earnings purity, and so much more.

If it was as easy as asking do they pay dividends or do you think they will go away, then everyone would be rich.

Also, advertising isn't going to be Google's only source of revennue. They are going to team with AOL I believe as weell as looking at CLEC's for some partnerhsip offerings. There is so much more coming down the pipeline. And, advertising will still be around. At least for the Google's and Yahoo's of this world.

Originally Posted by ur my bitch

Also, dividends are the sole reason a stock has value for whom?

What I was getting at was this: without dividends, stocks are nothing more than a piece of paper - worthless. The fundamental reason stocks have value is dividends. Speculation comes from changes in stock price. Stock price reflects future dividends. Plain and simple. This is always true. When stocks get bid up and up beyond the point at which they cannot payout enough dividends to discount back to current stock price, then a market correction will occur.

Disney has had some very deep trouble as has Verizon, HP (big time) and Daimler Chrysler. Also, when you compare valuations, you want to compare valuations to its peers, not just any random company. None of those comapnies you mentioned are Google peers, nor are they even in the same sector, let alone industry. So, when you compare valuation, you need to look at how Yahoo! is being valued. What's their P/E, P/B (price to book), you need to look at insider transactions, sector movement, fundamentals, earnings purity, and so much more.

These companies may have some trouble, but they are strategically leagues ahead of google. Daimler Chrysler, HP, etc. provide tangible products and services that do no risk simply dissapearing or being regulated the way google does. Everyone is so enamored with Google, but it's source of revenue could quickly be taken away either by the government, a competitor, or some unforseen innovation. Cars aren't going away anytime soon. The issue with google is the lack of lock-in. I can choose to go to Yahoo! with the click of a mouse and not be a google "customer" As soon as somebody invents something better than Google (and it may be simpler and cheaper to maintain as well), its possible that Google may fall off the map almost entirely. Likely? Who knows, but possible. This risk must be applied to a discounting factor for the dividends you expect to recieve from Google - and we all know how much IT companies love to pay dividends (10).

And comparing Google to other companies is entirely fair. Market Cap = Stock Price X # of Shares. Stock price is solely the markets expression of expectation of future dividends. The market is expecting more, stable, reliable future dividends from Google than from Honda Motor Corp.


Edit: This came in today:
Raenex writes "The car maker BMW has had its German website bmw.de delisted from Google. The delisting was punishment for using deceptive means to boost page ranking, which has now been set to zero for BMW. Matt Cutts, a Google employee who works to stop unethical search manipulation, originally reported the delisting in his blog and suggests that camera maker Ricoh is not far behind."

It certainly makes you think about how much power Google has. This ability will make Google a target for public regulation.
Try searching for "bmw.de" yourself.

[ur my bitch]

"What I was getting at was this: without dividends, stocks are nothing more than a piece of paper - worthless. The fundamental reason stocks have value is dividends. Speculation comes from changes in stock price. Stock price reflects future dividends. Plain and simple. This is always true. When stocks get bid up and up beyond the point at which they cannot payout enough dividends to discount back to current stock price, then a market correction will occur."

-- sounds like you took this directly from a text book, Investments 101 or something. Stocks do not have value based on dividends. They have value as a basis for measuring market cap,they rise with strong fundamental performance and therefore creat and have a value on their own. Many stocks don't pay dividends, but have large trading volume and Institutional Investors. Market corrections don't occur solely on the basis of dividends.

BTW, GOOGLE is up today.

Again, you CANNOT compare market cap and multiples of companies that aren't even in Google's sector. By comparing HP or Diamler-Chrysler to Google, it's like saying Levi's are no good because Pizza Hut is a strong company with tangible pizza. Then you go on to say that HP makes tangible products or that cars will never go away, but you have the option to choose to go to Yahoo or Google.

Well, HP has had sever struggles and replaced their CEO not too long ago. HP went for a long time as having their computers viewed as crap and they were a fourth tier option. As for cars, last I checked, EVERYONE also has the option as to what kind of car they purchase. Oh, have you heard about GM lately? Last I saw their credit was junk status and they are tinkering on bankruptcy.

Every company has risk. Google is cutting edge and they aren't going to let technology pass them by. As long as there is the Internet, there will be Google. And, again, if you are comparing market cap and multiples, you need to compare apples to apples.

Let's just take a quick look at Fundamentals:

Google has a 92.5% revenue growth, 62.9% gross margin, 23.9% Net margin and 23.7% ROE

0% debt to capital and a 67.9% cash yield. Google ranks above its peers in about every findamental category. some true peers for comparison sakes:

yhoo, cnet, bidu, expe, svvs, cmgi, ebay, untd, vrsn, elnk

Yahoo is the only one with more free cash. oh, Yahoo trades at a 79:1 p/e multiply Googles 2006 estiamtes by 79, that's like a $600 stock at that P/E. Not saying that is where it should trade, but it is just something to look at and say hmmmmm.

If stocks value isn't derived from dividends what then? A fiat money system?

It all comes to dividends, always. If you start to forget dividends, you get carried away. Free Cash Flows is just a proxy for dividends.

[hellcat]

I'm confused DJ. How is it that the only reason any stock has value is because of dividends yet arguably the greatest living investor has never once paid a dividend? And his company's stock is trading at around $87,000? Clearly some smart people don't agree with you.

[theMerciless1]

dividends are something to think about but...

if a comapny has a market cap of 1bil and the dividend is.20, that still only 2 mil paid in a div, 8mil/ yr. thats not much when divided amongst the stockholders.

The anticipation of future dividends.

If Berkshire Hathaway could somehow (beyond any doubt) make a commitment to never paying a dividend - ever, their stock price would fall to the price at which their assets could be liquidated. Why would you want to own a company if neither you, nor anybody else could ever make a dime on it?

Berkshire Hathaway is valued so high, because of it's dividend potential (and because they buy back shares instead of paying dividends). When it comes to paying dividends (and they probably will someday), they will be so good that the current price will be justified. At that time, the stock will be worth something, and if it's worth something then, then its probably worth something now. That's where speculation comes from.

[theMerciless1]

i can see your point.
if 1 year = 8mil, 20yrs = 160mil

Originally Posted by theMerciless1

dividends are something to think about but...

if a comapny has a market cap of 1bil and the dividend is.20, that still only 2 mil paid in a div, 8mil/ yr. thats not much when divided amongst the stockholders.

First of all, the .20 is usually quoted as per share. And a typical company will pay out much more than 2 mil/bil (which is only .2%). If I remember correctly, a more typical dividend payout for an S&P 500 company is somewhere around 2%

[theMerciless1]

foiled by math again!

[ur my bitch]

Originally Posted by DJ FC

It all comes to dividends, always.

Very wrong.

Diviends are important to some extent and are a consideration, but not the be all and end all.

[ur my bitch]

I just made $2,000 in less than 2 months on TWTC. Oh, they didn't pay a dividend.

However, their findamentals were vaslty improved, they had a postive earnings surprise and their market share is growing.....they are also helping AOL go to market with more internet users. Never once was dividend mentioned.

[ur my bitch]

Originally Posted by DJ FC

The anticipation of future dividends.

If Berkshire Hathaway could somehow (beyond any doubt) make a commitment to never paying a dividend - ever, their stock price would fall to the price at which their assets could be liquidated. Why would you want to own a company if neither you, nor anybody else could ever make a dime on it?

Again, so wrong. You were on targret with the buy backs, but also there is almost no float on the stock, so that is a big factor. Not enough shars to dilute the stock. Investors ARE NOT holding this stock for anticipation of dividends.

I sit with some of the smartest investors in teh world for a living. I have to ask questioons about stock selection and screening criteria. Rarely does the dividend conversation come into play. Dividends are a factor, but a large portion of the S&P pays a negligible dividend.

[ur my bitch]

Originally Posted by DJ FC

First of all, the .20 is usually quoted as per share. And a typical company will pay out much more than 2 mil/bil (which is only .2%). If I remember correctly, a more typical dividend payout for an S&P 500 company is somewhere around 2%

take a 2% dividend on an average S&P company. Let's just say the stock is trading at $40. 2% dividend = $.2 per quarter per share.

Ther are certain companies you buy for dividends, NFI for example. However, I remember talking to an analyst at one very succesful hedge fund a couple of months ago, and I was telling him I was looking for yield in my portfolio (yield on a stock = % dividend). He looked at me like I as an idiot and asked why. Then he broke out a multitude of reasons to choose other stocks woth minimal dividends.

But, I am going to start asking the dividend question this and next week and I will post what top Portfolio Manager's tell me.

DJFC, you sound like a very smart guy. Definitely 100 times smarter than I am. But, I think you're not realizing that the text books in college are teaching investments in a vacuum and not real life. MY old college roomate spent a career on wall street. he now lives in London and has for a while, and foudned a hedge fund. This is after years of working at Merril, Lehman and one other street firm in institutional trading. Trading currency, global debt and exoctics. I spent my first 6 years out of college as a bond trader. We both would sit back and laugh at how off the college classes were. They did teach some good basics and a few classes were great for analyzing capital structure. But, a lot of what they teach from the invesment side is with a very retail perspective. retail doesn;t move stocks, institutional money does. retail buyers aren't buying Berkshire Hathaway and aren;t buying to trade off of momentum and so on.

So, dividends may be the prmary objective for a retail investor, noit not the sole judge for an institutional investor.And not the deciding factor of price appreciation.

Originally Posted by ur my bitch

Very wrong.

Diviends are important to some extent and are a consideration, but not the be all and end all.

I never ment to say they were what you should consider when investing in a stock.

There are 2 things you should consider:

1) Dividends
2) Sale Price
edit: and risk factors

I would like to show you exactly how important dividends are, if you will all let me have the time:

If you have ever studied Game Theory, you know the best way to solve problems of this nature is to look at a possible "end state" and reason backwards. In my oppinion, all companies will eventually cease to exist and will be worth only liquidation value (which after bondholders can be nothing).

So we have 2 companies to look at: both of which will someday end and be worth virtually nothing. These companies are identical in every respect, except that one will pay dividends at a certain period, and the other never will.

For the company that pays dividends: The day it goes out of business, it is worth nothing. But for years ahead of this point, the investor is rewarded by a stream of dividends. If these are regular dividends, we can calculate the value of these by dividing the payment by the discount factor (annual for annual, etc.) Simple as that. This is the value of that stock. Of course, we may not know when the company is going to end, but we are reasonably assured it will happen someday. Now, from this point, at which the company begins paying dividends, those dividends have a present value. All of the dividends discounted back to time period "A" have a certain value. And at any time, the value of time period "A" can be further discounted back. This is speculation of stock price. You buy the stock, not for the dividends, but because you anticipate that the stock will have real value... someday. This process can be repeated for generations, as is the case of Berkshire Hathaway. It so happens that this future value is so great that the discounting still makes it a tasty investment.

Now let's consider the case of a company who refuses to pay dividends, and in the spirit of economics, we'll use an unrealistic example to demonstrate the extreme. This company is legally bound and cannot pay dividends. At the time of liquidation, this company has no value. A couple time periods previous to this, the company still has no value. Why would something which will be worth 0 in 3 years be worth anything today? This process is repeated all the way back to present time. So you see, in a world without dividends, no stock has value.

Now, this argument isn't to show that your research should focus solely on dividends, or that most profit is made via dividends. Indeed, both are false. But if you ignore dividends completely, you will fuck yourself. They are the sole reason a stock has value. All other measures are either proxies for dividends (as in the case of FCFs or 'Free Cash Flows') or are to show the relative health of the company within an industry to show the companies ability to provide future dividends. Speculation (as is the case of Hedge Funds) merely plays the fact that at some point in time, the companies future dividends will be worth more than they are today (or perhaps a couple steps back - that the anticipation of the anticipation will be valuable).

Either way, when looking at the endgame, we see that dividends really are the be all end all when it comes to stocks having value. If it weren't for this, there would be no logic as to why some companies were valued more than others. The market would be extremely chaotic, and winning stocks would have nothing to do with their fiscal performance.

Sorry for the misunderstanding - I did not mean to imply that you cannot make money without dividends. Most money is actually made via. speculation.

[THEINCREDIBLEdork]

maybe this is a dumb question but...

If company A (dividends) and company B (no dividends) are identical, how is it that the liquidation of company A, who has reinvested its profits instead of giving away its profits, is worth less than company B who now has less capital?

That certainly is a difference, but assume it to be a minor one.

Bondholders have seniority over stockholders.