From his new perch as a blogger, Henry Blodget remains often right, often wrong, always interesting...

My notes on his notes:

* He and I are both concerned about Google's capex and want to know whether it will pay off.

* His use of free cash flow as the key valuation metric is a good way to get at the risk afforded by all that capital spending, since, more than EPS, free cash flow lets us "get" how much risk-taking is built into how Google's run. So thinking in terms of the valuation as 55 times FCF (accepting his numbers, which I haven't checked) is very interesting and does give the bear crowd at least a better debating point than arguing that 36 times earnings is crazy. It highlights that Eric, Larry, Sergey & Co. had better be right about at least some of the bets they are making.

* I'd be interested to create a new metric -- free cash flow divided by growth rate -- and apply it to the S&P and the Nasdaq for comparison. Can any readers help with that analysis?

* He's right in one thing I think he's implying: that reining in the options culture at Google over time is going to be a huge management challenge. It's never clear how soon a management team should try to transition workers from thinking in terms of options and an equity culture to thinking more like a value-stock team. Companies like Expedia and Microsoft have struggled to get it right. But the impact of options on reported profits is very large at Google. There's enough growth to satisfy everyone for now. But at some point there's a plateau. A year from now, three years from now, five years from now, earnings growth will slow and multiples will compress and dilution will matter more than it does now. Then Google will wrestle with how much of the company employees deserve to get as part of their pay. No one's exempt.

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