Google’s Strategy: My Simplistic View

  • Posted: 18 July 2010 12:27 AM #76

    MACE: Did you see the cover article on Barron’s regarding Google? I think it’s accurate. Google’s a great long term investment. Apple’s a better one and a great investment NOW. Most stocks are exhibiting valuation compression. I assume this is due to deflationary forces on most asset classes.

    Signature

    Inflation robs from the past, deflation robs from the future. Pick your poison.

         
  • Posted: 18 July 2010 12:41 AM #77

    I agree Google is a good long-term bet. I’m surprised about the sell-off following results.

         
  • Posted: 18 July 2010 09:27 AM #78

    Google are throwing an event on Tuesday…

    Please join us on Tuesday, July 20th for a brief press event at Google’s office in San Francisco.  Marissa Mayer, VP of Search Products and User Experience, will be speaking, and we’ll be introducing a few new things we think you’ll be interested to see.  We’ll kick off with a continental breakfast followed by the presentation and product demos.

    Signature

    .

         
  • Posted: 18 July 2010 11:18 AM #79

    DawnTreader - 18 July 2010 03:41 AM

    I agree Google is a good long-term bet. I’m surprised about the sell-off following results.

    When Google was growing earnings at 40% or more each quarter you could ignore the risks and just play for the growth.  But at 24% earnings growth and trending down, the growth picture has substantially changed.  Now the risks seem to loom larger, among them:

    1.  95% of Google’s revenues are from one activity
    2.  Google has two new rivals to worry about that could impact that core activity:  Apple with iAd and Facebook.
    3.  Google is spending huge sums to find new sources of revenue, none of which have yet generated meaningful revenue (see, e.g. Android).
    4.  Google is under increasing legal and regulatory pressure all around the globe

    GOOG’s stock weakness is not a recent phenomenon.  GOOG has been flat for almost five years!  Compare and contrast to AAPL.

    It’s too early to rule Google out of the game (in the way I am tempted to rule Microsoft out), but for the last several years my money has been out of both GOOG and MSFT.

         
  • Posted: 18 July 2010 01:30 PM #80

    macorange - 18 July 2010 02:18 PM
    DawnTreader - 18 July 2010 03:41 AM

    I agree Google is a good long-term bet. I’m surprised about the sell-off following results.

    When Google was growing earnings at 40% or more each quarter you could ignore the risks and just play for the growth.  But at 24% earnings growth and trending down, the growth picture has substantially changed.  Now the risks seem to loom larger, among them:

    1.  95% of Google’s revenues are from one activity
    2.  Google has two new rivals to worry about that could impact that core activity:  Apple with iAd and Facebook.
    3.  Google is spending huge sums to find new sources of revenue, none of which have yet generated meaningful revenue (see, e.g. Android).
    4.  Google is under increasing legal and regulatory pressure all around the globe

    GOOG’s stock weakness is not a recent phenomenon.  GOOG has been flat for almost five years!  Compare and contrast to AAPL.

    It’s too early to rule Google out of the game (in the way I am tempted to rule Microsoft out), but for the last several years my money has been out of both GOOG and MSFT.

    I appreciate the airing of the inherent risks confronting GOOG and its shareholders. Comparatively speaking, GOOG is a young company and remains focused on revenue growth.

    Looking beyond the partisan bickering, Android is a competent OS and the Chrome OS is soon to follow. The company has a vast reservoir of resources and is aggressively preparing for an uptick in its core business and advertising begins to rebound and management is positioning the company for growth in new markets for the next five to ten years.

         
  • Posted: 18 July 2010 01:37 PM #81

    macorange - 18 July 2010 02:18 PM
    DawnTreader - 18 July 2010 03:41 AM

    I agree Google is a good long-term bet. I’m surprised about the sell-off following results.

    When Google was growing earnings at 40% or more each quarter you could ignore the risks and just play for the growth.  But at 24% earnings growth and trending down, the growth picture has substantially changed.  Now the risks seem to loom larger, among them:

    1.  95% of Google’s revenues are from one activity
    2.  Google has two new rivals to worry about that could impact that core activity:  Apple with iAd and Facebook.
    3.  Google is spending huge sums to find new sources of revenue, none of which have yet generated meaningful revenue (see, e.g. Android).
    4.  Google is under increasing legal and regulatory pressure all around the globe

    GOOG’s stock weakness is not a recent phenomenon.  GOOG has been flat for almost five years!  Compare and contrast to AAPL.

    It’s too early to rule Google out of the game (in the way I am tempted to rule Microsoft out), but for the last several years my money has been out of both GOOG and MSFT.

    I agree with your points.  I’ve said this before, GOOG is a one-trick pony, failing to monetize Android, except to spread the advertising model, which will be getting new competition soon.  They have potential to further penetrate the enterprise model with their apps, but this remains to be seen.  Professionals aren’t likely to learn new software in lieu of Office apps—it is NOT free if people have to invest time to learn new software!

    The comments at the bottom of the story that resurrected this thread (linked by Mace) are worth reading as much as the story.  They include comments by Google employees, and they are in a good position to add “color” to the main points in the story.  Some of the comments suggest Microsoft Version 2 in bits and pieces.

         
  • Posted: 18 July 2010 05:25 PM #82

    macorange - 18 July 2010 02:18 PM
    DawnTreader - 18 July 2010 03:41 AM

    I agree Google is a good long-term bet. I’m surprised about the sell-off following results.

    When Google was growing earnings at 40% or more each quarter you could ignore the risks and just play for the growth.  But at 24% earnings growth and trending down, the growth picture has substantially changed.  Now the risks seem to loom larger, among them:

    1.  95% of Google’s revenues are from one activity
    2.  Google has two new rivals to worry about that could impact that core activity:  Apple with iAd and Facebook.
    3.  Google is spending huge sums to find new sources of revenue, none of which have yet generated meaningful revenue (see, e.g. Android).
    4.  Google is under increasing legal and regulatory pressure all around the globe

    GOOG’s stock weakness is not a recent phenomenon.  GOOG has been flat for almost five years!  Compare and contrast to AAPL.

    It’s too early to rule Google out of the game (in the way I am tempted to rule Microsoft out), but for the last several years my money has been out of both GOOG and MSFT.


    I’m becoming a broken record on this thread. I believe the risk factors outlined above are either irrelevant or immaterial.

    1.  “95% of Google’s revenues are from one activity”:

    This is a positive, not a negative. If an investor wants a pure play on the online ad market (search) GOOG is perfect. If an investor wants diversification then they achieve that by buying a group of different stocks. I view this as a plus or neutral at worst.

    2.  “Google has two new rivals to worry about that could impact that core activity:  Apple with iAd and Facebook.”

    It’s normal for great businesses to have competitive threats. All do.

    APPLE: Apple is not threatening Google’s core search business. The smartphone sector is additive to Google’s growth. I’d argue that in the smartphone sector, Google’s Android is a bigger threat to Apple, than Apple’s iAD is to Google. In any event, the Iphone will never attain the largest OS market share in the smartphone sector because the product is premium priced. This enables Apple to capture most of the profits but prevents them from capturing most of the market share. Google’s Android is about market share, which is what Google’s Adnmob requires to capture the lions share of the advertising profits. Google’s Android OS appears destined to win the market share game in smartphones because of their free, open strategy, which will likely assure that they become the advertising leader in the smartphone space. Additionally, Admob is also placing ads on the Iphone platform.

    FACEBOOK: Facebook is not a threat to Google’s core business (search). Facebook is an important site that generates advertising revenues from display advertising. Display advertising is not as profitable as search advertising because search is highly targeted and therefore worth more to the advertiser. Google’s YOUTUBE site has only recently turned profitable because it’s revenues are dependent on display advertising. Both YOUTUBE and Facebook have tremendous potential. But Facebook is not a threat to Google’s search business. In fact, they don’t have a search business.

    3.  “Google is spending huge sums to find new sources of revenue, none of which have yet generated meaningful revenue (see, e.g. Android).”

    Google has spent huge somes that haven’t yet generated meaningful profits. Google’s strategy is a long term one. Google is still growing their cash pile net of these investments by approximately 12+ billion per year. Their cash pile currently stands at about 30 billion or about $95 per share and they have no debt.

    The potential in monetizing YOUTUBE remains huge. This site may ultimately be the worlds video network. The potential is literally mind boggling but lost within Google’s empire. If YOUTUBE was independent it would remain a hot topic as a huge IPO candidate.

    The potential in monetizing Android in smartphones is huge. Between the future advertising revenue and a cut of the applications, books , movies, and music etc. Google will likely generate huge profits. If this strategy were to fail Google could eventually charge licensing fees for future updates of the software after they have 50+% market share. I presume their plan A will succeed and that they won’t ever charge a licensing fee. Google is positioned to repeat the Android success in tablet computing. Then there’s the desktop OS and the office suite and on and on.

    4.  “Google is under increasing legal and regulatory pressure all around the globe.”

    This is ordinary for a company of its size and attributable to Google’s success. Apple has the same issue. In other words, this is a negative and a distraction but not material in that Google has the resources to deal with this.

    Net of cash, GOOG’s forward PE is approximately 11.5. Google is growing their top and bottom line in excess of 20% net of their massive investments in new initiatives. The stock market values growth companies based on their future cash flows. In this case, I believe the market has mispriced GOOG.  Less than 10% of all advertising is currently spent online. Google still remains the best positioned company to benefit from the continued trend in advertising shifting to the web. Even if all of Google’s future initiatives were to fail, Google should still be a very good investment. I thinks it reasonable to assume that Google has some future home runs incubating which will provide a substantial upside surprise to future earnings. Long Google and even more Apple.

    Signature

    Inflation robs from the past, deflation robs from the future. Pick your poison.

         
  • Posted: 19 July 2010 12:35 AM #83

    jeffi - 18 July 2010 08:25 PM

    [  In any event, the Iphone will never attain the largest OS market share in the smartphone sector because the product is premium priced. This enables Apple to capture most of the profits but prevents them from capturing most of the market share.

    There are a number of points of disagreement, but the most important one relates to Apple’s limits to market share due to “premium pricing.”  That was true in the personal computer wars, but it’s no longer accurate in the gadget wars that Apple is now winning.  When Apple set the price of the iPod Touch at $199 it made a pretty bold statement that it was not going to be undercut.  The iPad at $499 is also a bold opening price, and I believe that Apple will drop the price as necessary to keep from being undercut.  Apple will charge a premium, which its loyal fanbase will gladly pay (and even newbies will pay for Apple quality and brand) but the premium will be carefully controlled not to allow someone else to have higher market share.

    There is only one reason why Android is selling well now, and its not Apple premium pricing or the “openness” of the Android platform.  it is simply that the iPhone is not available on most US carriers, and most people don’t want to switch carriers.  Where the iPhone competes against Android (ATT and most of the rest of the world) iPhone wins easily.  When ATT loses exclusivity, Android will suffer.

    Furthermore, Android isn’t even having the impact that its sale numbers suggest.  Look at the apps sales, and it is clear that there is FAR more “stickiness” to the iOS platform than there is to the Android platform.  I wouldn’t be surprised if by the end of the year, a huge percentage of Android users have either an iPod Touch or iPad, and buy far more iOS apps than Android apps.

         
  • Avatar

    Posted: 29 July 2010 05:49 PM #84

    jeffi - 18 July 2010 08:25 PM

    ... FACEBOOK: Facebook is not a threat to Google’s core business (search). Facebook is an important site that generates advertising revenues from display advertising. Display advertising is not as profitable as search advertising because search is highly targeted and therefore worth more to the advertiser. Google’s YOUTUBE site has only recently turned profitable because it’s revenues are dependent on display advertising. Both YOUTUBE and Facebook have tremendous potential. But Facebook is not a threat to Google’s search business. In fact, they don’t have a search business ...

    In this article, Google: The search party is over, the author explained why Facebook and Twitter are threats to Google’s search business.

    Signature

    Stay Hungry. Stay Foolish.  - Steve Jobs

         
  • Posted: 29 July 2010 10:45 PM #85

    Mace - 29 July 2010 08:49 PM
    jeffi - 18 July 2010 08:25 PM

    ... FACEBOOK: Facebook is not a threat to Google’s core business (search). Facebook is an important site that generates advertising revenues from display advertising. Display advertising is not as profitable as search advertising because search is highly targeted and therefore worth more to the advertiser. Google’s YOUTUBE site has only recently turned profitable because it’s revenues are dependent on display advertising. Both YOUTUBE and Facebook have tremendous potential. But Facebook is not a threat to Google’s search business. In fact, they don’t have a search business ...

    In this article, Google: The search party is over, the author explained why Facebook and Twitter are threats to Google’s search business.

    I don’t buy it. Facebook generates display advertising. They do not do search, and are not a threat to do search anymore than Apple is. Search is an incredible business with massive growth remaining for many, many years. Almost everything Google does enhances their grip of the search market. This is a good byproduct of their strategy. Ultimately, Google will likely have a massive share of the smartphone and tablet platforms with numerous ways to generate new growth while enhancing their search dominance. Underestimate GOOG at your own peril. On the other hand, I feel strongly that Apple will outperform all large cap stocks for at least the next 12 months due to the massive tablet market that remains untapped. I believe that this products potential is massively underestimated. In other words, in a couple of years from now Apple will likely be selling over 100 million per year. This is big. Really big and it’s not FIOS.

    Signature

    Inflation robs from the past, deflation robs from the future. Pick your poison.

         
  • Avatar

    Posted: 29 July 2010 11:36 PM #86

    jeffi - 30 July 2010 01:45 AM

    ... Ultimately, Google will likely have a massive share of the smartphone and tablet platforms with numerous ways to generate new growth while enhancing their search dominance ...

    I presume you’re not Logan Smyth of this article, The Future of the Mobile Wireless Device Market.  From a ROI’s point of view, GOOG may not be better than AKAM, SNDK, PCLN and BIDU.

    Signature

    Stay Hungry. Stay Foolish.  - Steve Jobs