An Extraordinary Growth Stock

Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Google (NASDAQ: GOOG) has been one of the most successful growth stories of the last years, building a formidable cash flow machine in online advertising and consolidating its competitive strengths via new products, technological quality and brand recognition. The company is exceptionally well positioned when it comes to new trends like mobile, and has invested in different projects with serious disruptive potential. Google is remarkably well positioned for superior growth over the next years.

Competitive Strength

According to ComsCore, Google had a 67% market share in the US search market during January, up from 66.7% in December. While Microsoft (NASDAQ: MSFT) has been gaining market share lately, it has done so at the expense of Yahoo! (NASDAQ: YHOO) and smaller players. Microsoft increased its share to 16.5% in January from 16.3% in the previous month, Yahoo! on the other hand saw decreasing market share from 12.2% to 12.1%, and the same goes for Ask and AOL, falling from 3% to 2.8% and from 1.8% to 1.7% respectively.

Since both Microsoft and Yahoo! use the same Bing technology, we could consider them the same competitor, but even in that case they would still be materially behind Google with a combined market share below 29%. This is a crucial advantage in an industry in which competitive strength builds upon itself; the more we use a search engine, the more it learns about ourselves and the better it gets. Google is bigger because it’s better, and it’s better because it’s bigger.

Google is so popular that the brand name is replacing the name of the service, people “google” information as opposed to searching online. Few companies in the world have achieved such levels of success, and Google has done it in the much exciting industry of online advertising.

When it comes to mobile, the company has made a genius move by building its Android operating system and allowing hardware manufacturers to use it for no cost. Having a deep ecosystem and all the necessary apps is key for smartphone manufacturers, and Android provides precisely that for a cost of zero dollars. It´s no wonder that Android has become the leading mobile platform on a global scale with a market share of more than 75%.

Not only that, Google is believed to make more money on Apple (NASDAQ: AAPL) devices than on Android ones. The Apple Maps fiasco has proven how important Google is for iOS: applications like Maps, Search, Gmail and YouTube among many others are vital for both Google and Apple. The company provides some fantastic applications for iOS in order to secure its place in iPhones and iPads, and this means that Google is in a great position to ride the mobile boom not only via Android, but also by entrenching itself deeply into the Apple ecosystem.

Google is the undisputed leader in online advertising, and the company is in an unmatchable position to expand its dominance as traffic, and advertising dollars, continue shifting to mobile.

Online Advertising

Online advertising has been stealing dollars away from traditional advertising methods over the last years, and there is no end in sight for this trend considering that people all over the planet are spending an increasingly bigger share of their time online. Advertising dollars need to follow consumers, and this powerful trend is benefiting Google in a big way.

Besides, online advertising has many advantages over traditional advertising methods; it provides an easy way to rapidly achieve global exposure for a much lower cost and it's much more efficient in terms of targeting the right audience, which is a critical advantage in the advertising business. Measuring effectiveness is also much easier in online advertising, and different sources claim that return on investment is higher too.

Also, because online advertising is much cheaper and better targeted than other methods, many medium and small sized businesses that don't find a suitable alternative in traditional advertising are venturing into online ads. Online doesn´t need to necessarily compete versus traditional advertising when it comes to each of dollar client spending: Google is a handbook example of a long tail business, so its growth opportunities are not limited to the size of the traditional advertising industry.

Other Ventures

The company has been expanding beyond advertising lately, from hardware to cloud computing, going through Google Fiber and Google Apps, there many business areas in which Google has been planting the seeds of growth over the last years. Not every one of these areas will bring positive financial rewards, of course, but the company has materially diversified its possibilities by becoming a relevant player on many attractive trends.

If that weren´t enough, the company has developed some truly amazing technologies over the last years, with augmented reality glasses and the self driving car being two noteworthy examples. It´s hard to tell if these projects will ever reach a commercial stage, and what kind of economic impact they could have on the company, but the possibilities are certainly very exciting and these kinds of technologies show that Google is at the forefront of technological innovation on several areas.

Bottom Line

Online advertising is the cash cow in Google´s business model, and the company has a remarkable competitive strength in that industry, both in desktop and - probably even more - in mobile. And it doesn`t stop there, Google has at the same time invested in different areas with interesting prospects, which broadens growth opportunities over the next years. When it comes to growth possibilities Google is certainly an extraordinary company.

Andres Cardenal owns shares of Apple and Google. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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