As the most popular internet destination in the world, Google (GOOG, GOOGL) has extremely high search engine market share in both developed and emerging markets: ~70% desktop share and over 90% mobile share globally. The company is well-positioned to benefit from continued growth in its core search business as internet penetration increases (currently at approximately 40% globally), users spend more time online, e-commerce expands, and more advertising revenue is earned online. Google also has meaningful non-search assets in display advertising (e.g., YouTube, DoubleClick), mobile (e.g., Android), and social (e.g., Google+). The company is led by a long-term, product- focused management team with significant economic ownership and a demonstrated focus on shareholders and financial returns. However, Google faces increasing competition, greater regulatory scrutiny around the world, and declining margins due to rising R&D expenses. Despite these issues, we believe that its valuation at 17 times forward estimated earnings(c) is reasonable considering its strong long-term growth prospects and cash generation potential. Recently, we added to the Fund’s position; Google was a 2.3% holding at year end.
From Dodge & Cox’s Stock Fund Q4 2014 Shareholder Letter.