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Google’s Lawsuits and Competition Won’t Hurt Stock

March 14, 2012 | About:
Google (GOOG) has lost a fair share of lawsuits over the years, and a number of them came out of France. Among the latest in the series is one that relates to its free Google Maps feature, which Bottin Cartographes thought should be illegal. The argument was that providing a service for free is “uncompetitive” and the courts agreed, fining Google $19,700 and forcing it to pay $658,000 in damages to its French competitor.

More recently, a man from France sued the company for putting a picture on Google Street View that showed him urinating. Elsewhere, PanoMap Technologies LLC, a Shell company based out of Florida, has filed a lawsuit against both Google and Apple (AAPL) for patent infringement on technology used for panoramic image detail and panning.

Fortunately for shareholders, the fines that Google has had to pay out are minimal compared to its overall profits. Full-year revenue for 2011 was up 29%, and the fourth quarter revenue topped $10 billion for the first time in the company’s history.

Google is by far the largest internet information provider in the U.S. stock exchange, and I expect that its value is about to go up even more. This rise will not be due to any merit of its own, but rather because competitors like Yahoo (YHOO) look like they are dropping. Yahoo’s trend has been relatively stable, but the company does not have a lot of new ideas for expansion in the near future, as far as I can tell.

Yahoo’s latest big idea was to launch a personalized news site that will feature “exclusive tips from chef Ming Tsai of 'Simply Ming' and Dylan Lauren of 'Dylan's Candy Bar.'” If this is the best that the company can come up with, then I think it is time to say goodbye to Yahoo’s stock value. I expect the drop to be gradual, because it will take people time to notice that the service has become boring, but my suggestion would be to start selling off your shares as soon as possible.

While Google is still struggling to attract users to its social network Google+, it is keeping things dynamic in other areas, which I believe is a good way to maintain user interest in its services. Its real competition will come from rising stars like Zynga (ZNGA), an online gaming platform that broke into Facebook apps early on. Since January, this stock has doubled in value.

Zynga recently teamed up with some major game developers, which I expect will help encourage the company’s growth, not that it seems to be having any trouble in that area. With millions of players online at any given moment, users can always find someone interesting to play with and talk to, and those who do not like to socialize will not be force to participate in chat. Thus, it looks to me like Zynga has appeal for a wide demographic.

Among Zynga’s many successes is the app known as Words with Friends, which has exploded in popularity since 2009. Zynga games can be played by consumers on almost any device, and this app has more than 21 million people playing it every month. That is a lot more people than are logging into Google+, so it is easy for me to conclude that Zynga’s social media savoir-faire outdoes that of Google.

That being said, I doubt Google has anything to worry about. With Yahoo declining, Google will probably remain the most popular search engine out there, and revenue from advertising will continue to flow in, in my opinion. Since Zynga has a much smaller range of services, even if it manages to usurp some Google app users, the rest of Google’s products will keep the company going strong, in my opinion.

Google’s other main challenger, in my opinion, comes out of China. Baidu (BIDU) has a P/E of about 46, and its numbers are green across the board. To me, this signals that the company is healthy in all the areas that matter, and investors might want to pay attention. For the past two years, Baidu has been creeping up, and I see no reason for it to suddenly fail. At some point, this stock might be a lot more expensive than it is now, so it looks like a smart investment opportunity to me.

Baidu owner and CEO Robin Li is now the richest person in mainland China, and the company has been referred to as China’s Google. I think that this description is just about right, except that Google has a broader worldwide reach than Baidu. Baidu’s market cap is catching up with Yahoo, and I expect that the former will soon surpass the latter, especially since Yahoo does not seem to have a lot to offer these days.

The bottom line is that Google is still a strong stock, in my opinion, in spite of some healthy competition coming from Zynga and Baidu. These smaller companies are on the rise, and I believe that this is the perfect time for investors to get involved in them, before their value increases much more. As for Yahoo, Google has been nudging it out of the market, but I expect that its demise will be gradual. For this reason, I would not be at all surprised to see shares hit a few more peaks before the final downfall.

Yahoo never really recovered from the 2008 recession, unlike the other companies mentioned in this article, which look to me like they are doing fine these days. Unless the people at the top can come up with some really neat service (not another Google+), I expect to see consumers moving on to greener pastures, and these will include not only the giant Google but also the growing Baidu. In addition, masses of people are already flocking to the relative newcomer Zynga.

About the author:

StockCroc
I'm mostly interested in income investing using dividends, preferred stocks and other debt instruments, and pair trading.

I fundamentally analyze every business from the top down.

In my personal life, I have a strong Jewish faith and enjoy playing Scrabble and entrepreneurship.

Visit StockCroc's Website


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