In his example, the company is profitable from day one. The question is deciding how much those profits are worth -- ie, valuing the company. PE ratios and comparable company valuations are two standard ways to assess the long-term value of a stream of profits.
Adding up the profits until it equals the sum of your investment is an extremely crude measure, because it leaves out what you most care about -- how much the company is worth at the end of the initial time period.
P1. Yes - the company is profitable, but you have to subtract off the price you paid for it in order to find out whether it is profitable from your perspective.
P2.1 P/E is also crude.
P2.2 How much the company is worth at the end of the initial time period is certainly not what I most care about. If it is not viable also as a buy-to-hold, then you are playing greater fool speculation.
P2.3 It gives a useful perspective on the information. Where will Google be in 23.74 years? Will it still be a viable model? Will quantum computing have been proved so I can have a search engine in my pocket? Will all searching have to be social? Will Bing and Facebook become viable alternatives in the next year, driving down Google's margins? Will they ever pay a dividend, or will they keep re-investing until they go bust? My money will be locked up for 23.74 years, and there might be nothing at the end.
Was there a correction to the article? Because I see 6 years in the article. Which actually works out to 12% annual return, not that shabby in these return-challenged days.
Adding up the profits until it equals the sum of your investment is an extremely crude measure, because it leaves out what you most care about -- how much the company is worth at the end of the initial time period.