SWOT Analysis: Google is Fundamentally Strong
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Google ) is one of the most interesting success stories in the tech world over the last years. The company has a very powerful brand and many exciting growth opportunities in different business areas. Now that the stock is pulling back due to earnings weakness, it may be a good time to take a look at Google from a SWOT - strengths, weaknesses, opportunities and threats – perspective.
The idea is not to make an exhaustive list, just a look at some important factors to make an assessment about the company's risk and potential for gain as a long term investment.
• Google owns one of the most powerful brands in the world, so popular that the company´s brand name is used as a verb.
• The company has a market share of nearly 67% of the US search market in desktop, and an even bigger position in mobile.
• Technological strength. The more we use Google, the better the company gets at building its gigantic database of relevant information. That's a self-sustaining competitive advantage: more popularity means a better product, which makes the services more useful and demanded.
• The company is financially very solid, it generates big cash flows from its online advertising business and reinvests heavily for growth in different areas.
• Projects like the company's self-driving car, augmented reality glasses and fiber optic network capabilities show that Google is still a leading innovator.
• The web is moving towards mobile, Google has a very solid position when it comes to mobile traffic, but monetizing that business is a big challenge.
• The company is entering the hardware business in which competition is tough, profit margins are low and Google has little experience.
• The acquisition of Motorola Mobile will be another negative for profit margins in the middle term.
• Patent litigations, privacy issues, lawsuits and all kind of regulations can be a risk factor for Google. The company had to leave China after it got into a dispute with Chinese authorities over censorship issues in 2010.
• Google has a very valuable and unique asset in Youtube. The biggest online video platform in the world could become a money making machine via advertising and/or premium content in the following years.
• Geographical expansion is another big opportunity for Google, and emerging markets could be an important growth driver in the middle term.
• Gmail, Chrome, Google Docs and Google Maps are just a few examples. The company owns an enormous ecosystem of services and applications which offer plenty of opportunities for further growth.
• The company has the scale and financial resources to acquire promising technologies and potential competitors. Too many acquisitions can be a risky strategy, but having the financial muscle to spend when a good opportunity arrives is always a positive.
• Apple ) owns the high-end markets in smartphones and tablets, and a huge ecosystem for its products. The Cupertino giant has recently renewed its line of products, and will probably gain market share versus Android over the next months. Google and Apple can coexist and both be very profitable, but the competitive tension has been increasing lately, and that's a reason for concern.
• Microsoft ) has been gaining market share in search versus Yahoo! ) lately, and the company is launching its new Windows 8 and Surface products with the idea of reinvigorating growth and entering the mobile revolution. Microsoft is not a big threat for Google at this stage, but the risk deserves to be watched.
• Facebook ) is going strong after the online advertising business, the social network has a huge user base of 1.01 billion users and a lot of information about them. When it comes to competition for advertising dollars, Facebook could become a serious challenger for Google in the future.
• Yahoo! has been losing market share versus both Microsoft and Google, but the company is planning to refocus on its search business and invest for growth in mobile under the new leadership of Marissa Mayer. Yahoo! is still way behind Google at this stage, but still a relevant competitor.
• Google is very dependent on mobile advertising. Changes in demand levels and spending patterns could be a big problem for the company if it doesn't adapt well.
Google operates in a very dynamic and competitive environment, and the transition towards mobile is an important challenge. But the company has a dominant market position in online advertising, sustained by a very popular brand and a high degree of technological power. Over the long term, the company has the fundamental strength to continue growing and delivering solid returns to investors.
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acardenal owns shares of Apple and Google. The Motley Fool owns shares of Apple, Facebook, Google, Microsoft, and Yahoo! and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Apple, Facebook, Google, Microsoft, and Yahoo!. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.