GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Google: High Upside Expected in 2012

Google (GOOG) is at a crossroads. Shares have steadily hovered around $610 over the past few months as the company tries to expand beyond its Internet search base to stay relevant in the information technology world. Google aims to capture portions of other technological market shares in order to expand its business. In particular, Google has begun its venture into consumers' daily lives in order to stay relevant and grow as a business. Still, there is a possible downside: If Google is unable to generate excitement about its new products, it will reach a digital plateau.

While Google may have a strong hold on the data-mining world, its growth depends on its ability to develop in these other markets; in particular, Google has moved into the mobile computing industry and also seeks to create a successful social media brand, both ventures that deal with consumers at a personal level. Success in these two markets is critical to its growth as a company.

Most recently, Google seeks to capture a portion of Apple's (AAPL) share in the tablet market in its attempt at growth. Google's greatest hope for a strong showing lies in its $12.5 billion acquisition of Motorola Mobility. Analysts and tech nerds everywhere have excitedly debated what the acquisition will mean for Google, discussing its manufacturing of tablets to run Android, Google's mobile device operating system (OS) software. The Wall Street Journal cited anonymous sources that claimed the company was planning to open an online store that would sell tablets directly to consumers. This would be a huge change for Google. Currently there are many smartphones and tablets running the Android software-in fact, the Android has become the world's number one smartphone operating system - but this would be the first physical product developed by Google's mobile team. A physical product would open a lot of new doors for Google, potentially leading to other computing hardware and software.

Historically, wireless carriers played a major role in making the Android-based smartphones successful, which was in part due to Apple's exclusive deal with AT&T (T) that shut out other wireless carriers. According to the Wall Street Journal, this caused the market to reduce the costs of Android phones. The iPad, however, was a different story: wireless companies have not helped out to the same degree because the iPad was released to multiple carriers early into its life. Consequently, creating an appetizing tablet has become much more of a challenge for Google.

Additionally, the Android software has a fraction of the applications or "apps" that have contributed to Apple's high sales. These apps are the primary feature for these mobile devices and Google will need to start ramping up its development if it wants to compete in the app-and subsequently the tablet-market.

Still, Google has one distinct advantage: there are many different manufacturers producing many different products, which will ultimately lower the price points for Android-based tablets and, more likely than not, increase sales. With Google's new acquisition, the market will have even more options for consumers to choose from, and many may choose the less costly Androids. After all, not everyone can afford the basic, $500 iPad.

Obviously, Apple still exists as Google's strongest competitor in the mobile device industry, and Google has a long way to go if it wants to take on Apple's tablet. Consumer Reports articles list numerous ratings for the various tablets currently on the market, but the simple fact remains that all of its articles simply compare other companies' tablets to the iPad and offer conclusions based on how well it stacks up against Apple's prodigy. Apple's stock continues to rise, growing about 60 percent over the past six months and closing at about $599.55 last week. Google's Android software has lead its growth of about 20 percent to a higher figure but at a less drastic increase.

Google also needs to look at its failing smaller competitors as cautions of success. The former powerhouses of the smartphone genus,Microsoft (MSFT), Blackberry (RIMM) and Palm (acquired by Hewlett-Packard (HPQ) and listed as "The Worst Stock on the DOW"), still all exist in the mobile computing world; however, all three now serve as classic examples of the quick rise and fall of technology in this information age. Palm may have seen the end of its days, and Blackberry and Microsoft are floundering in this challenging market. Blackberry hit the firm's lowest stock price at around $12.52 since 2003 at the end of March and, according to Forbes, it has been laying off its top executives in an attempt to save the faltering company. Before Apple introduced its iPhone, Microsoft and Blackberry executives scorned its entry into the smartphone world. They similarly laughed at Google's Android software. None of them are laughing now.

Now that Android and iOS (Apple's operating system) rule the smartphone market, the bigger challenge lies in tablets, which is a much broader category than the smartphones. Amazon's (AMZN) Kindle Fire has been called the most successful challenger to the iPad, and though Amazon's stock has dropped about 5 percent over the past six months it has been a steady competitor in the tablet world.

Google also needs to expand its foothold in the digital world if it wants to maintain its large consumer base. Though it is already one of the most used search engines, it seeks to gain a bigger portion of the social networking apple with its Google+. Google's new "Hangouts" app is a hopeful new way to video chat on the social network, allowing up to ten people to connect on a single video chat. This would be a major development as this is the first service to offer multi-user video chat for free and it would be open to developers for further exploration.

Still, Google+ barely touches the tip of the Facebook iceberg. At more than 100 million users, Google+ is still only a fraction of Facebook's 845 million users. Facebook has only applied for an initial public offering recently, though the value was nearly $100 billion, which puts the company on track for one of the biggest U.S. stock market debuts of all time.

So what does all of this mean? Boiled down simply, it means this: Google has set itself up nicely for a lot of success, but it will depend on the quality of the products and its ability to market those products effectively that will determine whether or not this stock will drop off and become another Blackberry or whether it will grow to take on Facebook and Apple in a more even market setting.

About the author:

InvestmentUnderground
Buy low and sell high is easier in theory than in practice– and that’s where we come in.

At Investment Underground, our editors are disciplined, independent thinkers who will inform you when to buy undervalued investments, recognize catalysts, and sell when full value is realized. We provide timely, detailed analysis of our value investing strategies and help you achieve your goals of a reduced-risk trading environment.

If you are fed up with volatile markets and manipulation that put your financial well-being in jeopardy, join us to achieve those gains you deserve without the headache.

Visit InvestmentUnderground's Website


Rating: 3.3/5 (7 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK
Email Hide