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Reasons to Remain Bullish on Google

June 17, 2014 | About:
tyokunbo

tyokunbo

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Google (GOOG) builds products and provides information services. The company offers Google Search, Knowledge Graph, Google Now, Product Listings Ad, and other solutions. It offers hardware products, including Chromebook, Chromecast, and Nexus devices. In addition, Google has a presence in many areas across the tech sector. In this article, I will discuss why the company will continue to create value for investors.

Numbers at A Glance
The first quarter 2014 revenue for Google grew a healthy 19% on a year-on-year basis to $15.4 billion. Without currency fluctuations, the company’s revenue growth would have been 21% year-on-year. Its non-GAAP operating profit was $5 billion, and its non-GAAP margins were 32%. The company’s U.S. revenue grew 14% year-over-year to $6.7 billion. Its non-U.S. revenue excluding the U.K. was up 25% year-over-year to $7.2 billion. Google had a strong operating cash flow of $4.4 billion. A free cash flow of $2 billion for the first quarter provides the confidence that the company will be able to fund strategic growth opportunities in solutions like Android, Chrome, YouTube, just to mention a few.

Revenue-yielding Platforms
Google has one of the most successful platforms among tech companies. For example, YouTube reaches more than 1 billion people a month through popular Google channels. What I find astonishing is that YouTube extends the reaches of advertisers that turn to it. For example, Super Bowl related ads on YouTube have been viewed over 300 million times.

Also, YouTube enabled a 300% increase of daily visits to Nissan's website in Australia during a promotion. The solution is well-positioned and has a competitive advantage over video platforms of players like Facebook (FB) and Yahoo (YHOO).

A Strong Momentum from Hardware Products
Google’s $35 Chromecast is a real hit. Google recently opened up itsChromecast, and more than 3,000 developers worldwide signed up. Chromecast sales were very strong in the first quarter. The Chromebook platform goes from strength to strength. Market researchers say they're selling faster than ever, predicting 11 million sales by 2019. Though rumors that Google is planning to kill off its Nexus device program have been circulating recently, the company says that the Nexus 5 was a "very strong" performer for Google.

Solid Contracts
Businesses, governments, and schools are using Google apps to work better. The state of Sao Paulo moved to Google apps for more than 4 million students and 300,000 teachers and staff. About 110,000 employees in more than 26 countries at Spain’s Banco Bilboa are using the Google Apps offerings. I expect to see a continued momentum in this area in the near future.

International Expansion
The company opened its first office outside the U.S. in 2001. Since then, Google has established a stronger international presence. It invested in a start-up center in London known as "Tech City" near the Silicon Roundabout. The data centers in Hong Kong, Taiwan, and Singapore are the first three Google-owned data centers in the Asia-Pacific region. With the release of its Chromecast apps, the company announced big plans for the international expansion of its streaming media device in 2014.

Promising Emerging Businesses
Google has an impressive array of emerging businesses. One of them is Google Play. Google introduced Google Play movies to 39 new countries in the last quarter. Over 75 million new users joined Google Play games in the last six months. The development is bringing Google a lot of revenue.

In addition, Google is about to bring its Android as a car. In March, Google announced Android Wear, a project that extends Android to the wearable market. Google is also working with partners who can’t wait to see what developers come up with for people’s wrist.

Conclusion
Though the company had some legal expenses that slightly affected its revenue in the first quarter, I would recommend Google as a strong buy. The company has revenue-yielding platforms and a strong momentum from hardware products. Also, Google has solid relationships with enterprises and governments. The development will guarantee the company’s cash flow. This, in turn, will have a positive effect on shareholder value. I remain bullish about this tech giant.


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