GOOGLE INC. (Nasdaq symbol GOOG; www.google.com) is the world’s top Internet search engine, with about two-thirds of this market. The company makes money by selling advertising on its websites. Google gets 96% of its revenue from advertising.
The company also offers a variety of free services such as Gmail (email), YouTube (videos) and Google+ (social networking). These services help draw more users to Google’s websites, which lets the company sell more ads and charge higher ad rates.
Google’s Android software now powers over two-thirds of the world’s mobile devices. That delivers more traffic to the company’s websites, which helps offset some of the lost mobile ad revenue. Moreover, the company’s growing expertise with Android should help it find new ways to profit from mobile services.
Google’s revenue soared by 130.2%, from $21.8 billion in 2008 to $50.2 billion in 2012. That’s partly because of Motorola Mobility, which it bought for $12.4 billion in May 2012. The company recently agreed to sell Motorola’s Home division, which makes TV set-top boxes and modems for cable companies, for $2.35 billion. Even so, Motorola’s remaining mobile phone operations contributed $4.1 billion to Google’s 2012 revenue.
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Tech stocks: Patents from Motorola deal valuable weapon in court battles with Apple and Microsoft
Motorola will help boost Google’s annual revenue from mobile devices and services to $8 billion from just $2.5 billion before the purchase. Moreover, the deal also gave Google access to patents that will help it defend itself against lawsuits launched by competitors such as Apple and Microsoft.
Earnings jumped 150.2%, from $5.3 billion in 2008 to $13.3 billion in 2012. Because of more shares outstanding, earnings per share rose at a slower pace of 138.9%, from $16.69 to $39.88. The company spends a high 14% of its revenue on research, so it’s more profitable than it appears.
Although the stock is down from its recent peak of $774 in October 2012, it is still up 22.2% since we first recommended it at $607 in our August 2011 issue.
Google’s earnings could jump to $46.13 a share in 2013, and the stock trades at 16.1 times that estimate.
In the latest edition of Wall Street Stock Forecaster, we look at whether rising use of mobile devices to access the Internet will hurt Google’s earnings as advertisers pay lower rates for mobile ads that are more difficult to see on smaller screens. We also examine whether Google can comfortably afford to keep making acquisitions and investing in new growth projects with its current cash holdings and level of debt. We conclude with our clear buy-hold-sell advice on the stock.
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The Successful Investor Inc. and its affiliate Successful Investor Wealth Management (referred to hereafter as TSI Network) know that you care how information about you is used and shared, and we appreciate your trust that we will do so carefully and sensibly. This notice describes our privacy policy. By visiting websites owned by or associated with TSI Network, you are accepting the practices described in this Privacy Policy.
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