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Figuring Out Google

January 15, 2014 | About:

I wish this was a post where I could give you an exact answer, but it’s not. Increasingly, I’m struggling to get a strong opinion about Google’s (NASDAQ:GOOG) stock. I do know that I LOVE what they’re doing. They have incredible products that I use all the time and are working on moonshots (self-driving cars, balloons, top ISP, etc) that could transform our way of living. I have no doubt that Google will be a major tech company for decades longer. I also think that from that perspective, the return of Larry Page as CEO was the best thing that could have happened.

There is a big difference between a great company and a fast rising stock price though. In the end, for Google to be worth its current investment, the revenues and profits will need to increase significantly over the next few years. Let’s start off by looking at Google’s numbers:

TickerNamePriceEPSPE RatioPE Next YearReturn YTDSales GrowthAnalyst ratingBook ValueBetaRevenue/ShareSales 5Y Avg GrowthEPS 5Y Avg Growth
GOOGGoogle Inc1122.9832.9731.8221.570.8532.374.42248.350.96153.3422.4118.89
So Google is trading at a forward P/E over 20. In the past 5 years, both sales and earnings per share have increased by around 20% annually which is solid. I’m not convinced that it will be able to keep it up though. If you think about it, Google’s money has been mostly generated by its search and display advertising businesses. Those have mostly seen growth because of increased traffic. With a dominating market share and most of the growth of the internet population behind us, I’d think that Google will need to generate growth from other divisions.


Already, you’d think that through products such as Maps, Gmail, Docs, Drive, Android, its venture investments and other kind of activities, Google would be able to generate significant cash. That is not the case though.

What Is Google’s Global Strategy?

Google continues to say its mission is organizing the world’s information but if that’s the case, what is the logic behind investing $300M for a stake in Uber or paying $3.2B to take over Nest. Yes Google has brilliant minds and has been able to accomplish more than any other tech company in the last decade. But does that mean it should start spending its money, energy and focus over all kinds of bets all around the world? It can afford any of these bets… but they’re adding up and I’m not sure that as a shareholder, I’d end up getting the best possible deal.

In The End, I Do Trust Google….For Now

I guess at this point, it’s all about trusting Google for what it is and is attempting to do. I’d hate to bet against Google, especially over the long term which also explains why I ranked Google #6 in this year’s Power Rankings. I will continue to work on figuring out as best as I can how they’re doing. If ever you’re very interested in Google, I highly recommend a recent podcast from Asymco that attempts to better understand Google, it is extremely well done.

What Are Your Thoughts On Google? Do You Feel Confident About Your View?

Rating: 3.0/5 (1 vote)


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GuruFocus has detected 3 Warning Signs with Alphabet Inc $GOOG.
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