Google Glasses could be the Next Revolution
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
According to The New York Times, Google (NASDAQ: GOOG) is working on an extremely interesting project: a pair of display glasses that could be a revolutionary change in the way we interact with technology in our everyday life. I'm not saying this will necessary change our future; I just mean we should consider that possibility, at least as a low probability event.
The glasses, which are expected to be for sale by the end of this year, should have some very entertaining characteristics, like a low-resolution built-in camera that will be able to monitor the world in real time and overlay information about locations, surrounding buildings and friends who might be nearby. The product is rumored to be working with Android, so we could expect an efficient integration with Android smartphones and tablets, as well as with Google services in general.
It sounds like something hard to build, but the possibilities are endless. If Google is able to develop a product that works correctly and includes some useful applications, the project has a very attractive potential: directions, games, shopping, social networks, are just a few of the areas that could be materially affected by this kind of product. The glasses are expected to have price ranges similar to those of smartphones, which is a fairly wide range.
The New York Times reports that Google is not yet thinking about any ways to monetize the project. The company is said to be waiting for customer reaction before thinking about money. However, the possibilities in advertising are obviously fascinating if such a product works as expected. This is a big if, of course.
But the good news for Google investors is that nobody is expecting any revolution from Google Glasses at this stage. This is not the company's only crazy-sounding project: wind energy and a self-driving car are among the most famous extravagant projects of the company, and nobody is expecting much money from those projects either.
These ventures are a part of the company's expenses, but they don't produce any money. If Google decided to close these experiments the company would even save a few bucks, so investors are not taking much of a downside risk with this kind of research. Upside potential, although hard to materialize, looks quite attractive on the other hand.
Anybody willing to invest in Google right now should acknowledge that the company is facing many financial challenges with the acquisition of Motorola Mobility (NYSE: MMI). The last time Motorola Mobility reported earnings, investors were not pleased at all with the company's weak sales and margins. Hardware is a very tough business in which Google has no experience.
The acquisition of Motorola Mobility will almost for sure have negative impact on margins, and with the company embracing so many alternative projects investors have reasons to be concerned about profit margins and Google's results in the following quarters.
Some investors are questioning management's ability to focus resources and attention in the most critical aspects of the business. Many complain about the fact that Google has not yet launched a better version of Google apps, which could be a huge blow for rival Microsoft (NASDAQ: MSFT) and its Office products. Microsoft is still the winner in the business application segment and Google just doesn't seem to be working hard enough to dethrone Microsoft.
Investors shouldn't expect an easy ride with Google, but the company is tremendously dominant in online advertising, and makes healthy cash flows from that business. Growth opportunities are quite considerable and Google is not expensive at all trading at a forward P/E of 12.1.
From a risk and reward perspective Google looks as an attractive proposition for long term investors... or maybe I'm just wearing my rose colored Google Glasses.
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