GOOGLE INC.(Nasdaq symbols GOOG $540 [class C: nonvoting] and GOOGL $554 [class A: one vote per share]; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 682.4 million; Market cap: $368.8 billion; Priceto- sales ratio: 5.4; No dividends paid; TSINetwork Rating: Above Average; www.google.com) controls about two-thirds of the global Internet search market, mainly because its innovative technology helps users quickly find the information they’re seeking. The U.S. supplies 43% of the company’s revenue.
Google gets 90% of its revenue by selling advertising on its websites. It mainly does this through its AdWords program. Using AdWords, advertisers bid on certain search words or phrases. The company then charges advertisers when users click on their ads.
In addition to search, Google offers other free services and soft- ware, including Gmail (email), YouTube (videos), Google+ (social networking), Chrome (a web browser) and Android (mobile phone software). These services draw more users to Google’s sites, which lets it sell more ads and charge higher ad rates.
Google’s revenue shot up 125.1%, from $29.3 billion in 2010 to $60.0 billion in 2014. Earnings jumped 68.2%, from $8.5 billion to $14.3 billion. Per-share earnings rose at a slower pace of 58.2%, from $13.16 to $20.82, on more shares outstanding (all per-share amounts adjusted for a 2-for-1 stock split in April 2014).
In the three months ended March 31, 2015, Google’s revenue rose 11.9%, to $17.3 billion from $15.4 billion. Overall earnings gained 5.4%, to $4.5 billion from $4.3 billion, while per-share earnings rose 4.8%, to $6.57 from $6.27.
The number of paid clicks on advertisers’ads rose 13% in the latest quarter. That helped offset a 7% drop in the average cost advertisers paid per click, because more users are accessing the Internet with smartphones and tablet computers.
Advertisers pay lower rates for mobile ads because they’re harder to see on these devices’smaller screens than on desktops and laptops. As well, people are more likely to buy goods or book vacations on a desktop computer rather than a mobile device.
A two-pronged mobile strategy
In response, Google has adjusted is search algorithms to make mobile-friendly websites rank higher than regular sites. That should encourage businesses to make their websites work better on smartphones. This new approach also makes it easier for mobile users to access an advertiser’s app instead of the regular website.
In addition, the company recently launched its own wireless service, called Google Fi.
Unlike regular plans, Google Fi uses free Wi-Fi networks whenever possible. When Wi-Fi is unavailable, it will switch users to one of two existing cell networks, T-Mobile or Sprint, whichever is stronger at the customer’s location.
Google Fi will be much cheaper than most cellphone plans and will refund the cost of unused data each month. Google also plans to launch the service in over 120 countries.
Google Fi will likely be as successful as the company’s Google Fiber Internet and TV service, which is 30 times faster than competitors’offerings. So far, the company has installed Google Fiber in eight U.S. cities and plans to expand to over 30 more in the next few years.
Research focus keeps Google on top
To support these initiatives, Google spent $2.75 billion (or a high 16.0% of its revenue) on research in the latest quarter. That’s up 29.5% from $2.1 billion (or 13.8%) a year earlier.
Some of this spending goes to special projects that Google calls Moonshots. Many of these initiatives will fail, but some could become significant sources of future growth.
Perhaps the best known one is the company’s selfdriving car, which aims to reduce accidents caused by human error and speed up traffic flows. Google will not build the cars, but will instead licence the system to carmakers.
Google can easily afford to keep investing in speculative products. In the first quarter of 2015, it generated free cash flow (cash flow minus capital expenditures) of $3.7 billion. It holds cash of $65.4 billion, or $95.90 a share, and its long-term debt is just $3.2 billion.
Like Apple, Cisco and other big technology firms in the past few years, Google may soon decide to start paying a dividend or buy back some of its shares. That would increase its appeal among big institutional investors, like pension funds, and spur the shares.
Stick with the non-voters
The class C non-voting stock trades at 21.3 times the $25.30 a share that Google will probably earn in 2015. That’s a reasonable multiple in light of its high research costs and growth prospects.
Shareholders should keep holding their class A stock, but we recommend the cheaper class C shares for new buying.
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Privacy Policy and Terms of Use
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.
This privacy policy is applicable to all TSI Network Visitors, Clients, Employees, Suppliers, Web sites, Management, and all other interested parties. Any links to or from our site are not covered by this policy. We encourage you to read the privacy policies of every site that you visit.
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We do not collect or disclose personal information, except when it is provided to us voluntarily by the site/store visitor with their consent.
We store subscriber and password files containing personal information securely. These files are stored in secure areas that are not accessible to the general public. We are always working to ensure the security of your personal information.
We are continuously in the process of improving our sites and services. If any new features or policies require a change to this current policy, we will post a clear notice of this change on pages of our site where the privacy policy appears. The principle behind this privacy policy is to collect information with your knowledge and consent.
What personal information do we collect?
The information we receive from customers helps us personalize and continually improve your online experience at TSI Network. TSI Network may collect personal information online for all legal purposes, which include, but are not limited to:
Information You Give Us: We receive and store any information you enter on our website or give us in any other way through sign-up forms or ordering forms for publications and services. You can choose not to provide certain information, but then you might not be able to take advantage of many of our services and features. We use the information that you provide for such purposes as responding to your requests, customizing your web browsing experience for you, improving our website, and communicating with you.
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We do reserve the right, however, to collect and perform statistical analyses of the internet traffic to our website for our internal use. However, information collected does not allow us to identify any individual, and will not collect any personal information of the visitor. Furthermore, we do not sell, rent or loan to any outside parties the information collected and analyzed.
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Does TSI Network Use the Information It Receives?
"Contact Us" and Comment Features: TSI Network encourages visitors to its websites to contact us with questions and comments. Email addresses and other information of persons using these features may be collected in order to facilitate our responses to those inquiries.
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TSI Network has procedures in place to keep your personal information accurate, complete and current for the purposes for which it is collected and used. You may review the information that you have provided to us and where appropriate you may request that it be corrected. If you wish to review your personal information please send a request to: service@tsinetwork.ca.
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The provision of information by you is entirely voluntary and you have the right not to provide information. Subject to applicable law, you may have the right to receive certain information as to whether or not personal information relating to you is held by TSI Network and to obtain a copy of such information that is sought. You may also have the right to require information, where appropriate, to be erased, blocked or made anonymous or to have data updated or corrected. If you do not wish TSI Network to hold information about you or if you wish to have access to information, modify information, or object to any processing of information or if you have questions please contact us.
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Changes to this Policy
This Policy is the sole authorized statement of TSI Network's practices with respect to the collection of personal information through TSI Network's websites and the subsequent use and disclosure of such information. Any summaries of this Policy generated by third party software or otherwise (for example, in connection with the "Platform for Privacy Preferences" or "P3P") shall have no legal effect, are in no way binding upon TSI Network, shall not be relied upon in substitute for this Policy, and neither supersede nor modify this Policy.
TSI Network may revise this Policy from time to time.
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The contents of this web site and our publications are based upon sources of information believed to be reliable, but no warranty or representation, expressed or implied, is given as to their accuracy or completeness. Any opinion reflects the Successful Investor’s judgment at the date of publication and neither the Successful Investor, nor any of its affiliated companies, nor any of their officers, directors or employees, accepts any responsibility in respect of the information or recommendations contained in the publications or on this web site. Moreover, the information or recommendations are subject to change without notice.
Information presented on this web site or contained in our publications is not an offer, nor a solicitation, to buy or sell any securities referred to on the web site or in the publications. The material is general information intended for recipients who understand the risks associated with an investment in any securities referred to in the publications or on this web site. The Successful Investor has made no determination regarding whether an investment, course of action, or associated risks are suitable for the recipient.
