What Does the Future Hold for Google?
Dr. Osman 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) is a technology giant that provides software and hardware solutions to enhance the gathering, organization, and sharing of information. Founded in 1998 as a garage-headquartered search engine, the company has evolved into a technology conglomerate. Its products include smartphones, email, cloud computing, social networks, maps, tablets and publishing tools. Google’s areas of business involve search technology, advertising services, operating systems and platforms. Despite having a big sum of cash in the vault, Google does not offer dividends to its shareholders.
In an attempt to continue its innovative and competitive culture, the company has adopted a policy of acquiring attractive startups and smaller companies such as YouTube, Zagat, and PushLife. Google is also set to overtake Facebook (NYSE:FB) to become the online display advertising leader in the U.S. The acquisitions of YouTube, DoubleClick and AdMob set into motion an overhaul of Google’s business philosophy. On the mobile front, Google is virtually assured to continue reaping huge amounts of revenue streams from its mainstay apps, i.e., Google Maps and YouTube. The company has been continuously pushing new updates to its smartphones and tablets, hoping to derive larger advertising margins through the increased sales of products that deliver its advertising content.
Future Challenges and Prospects
Google is also investing heavily in research and development for the future. These developments do not directly increase the company’s income; however, they do provide more users the ability to access the company’s search engine. Thus, increasing numbers of customers are exposed to the site’s advertisements. However, there are a few causes of concern for investors.
First, there is a need to be cautious of Google’s tendency to be a momentum stock, as it has jumped by about $170 in just three months. While its rise is understandable due to the company’s performance, a great deal of selling and profit-taking is likely in the near future.
Second, Apple (NASDAQ:AAPL) controls 23% of the smartphone market. Since Apple’s decision to ditch Google Maps, Google’s mobile revenue stream has been significantly affected. The company’s switch to less profitable mobile advertising has caused its revenue-per-click to decline over the last three quarters. Increasing competition will hurt Google’s mobile advertising revenue.
Third, Apple has won a lawsuit against Samsung, which also happens to be the largest Android provider. With Samsung handhelds now banned from being sold in the US, Google misses out on more potential advertising revenue. Microsoft has also entered the tablet playing field with the ‘Surface,’ which will surely chip away at Google’s revenues from the tablet market.
Last, the Vringo (NYSEMKT:VRNG) case has been widely publicized by the media. Vringo, a tiny intellectual property company, has been giving Google a big headache recently. The patents that Vringo inherited from the Lycos search engine turned out to be a huge catalyst for Vringo, which has returned about 400% this year. I think Google will end up being forced to make a bold offer for this tiny company.
While Google has experienced enormous success, there are potential pitfalls for the advertising giant. Despite stiff competition from Apple in the handheld devices segment, Google maintains almost unparalleled exclusivity in the virtual advertising market. Even the software giant Microsoft could not beat Google in this field. The company may have ventured into different categories of businesses to expand its portfolio, but it must be stressed that Google’s primary focus is advertising. In any case, there is only one expectation regarding Google’s future performance: above and beyond the rest.
Compare and Contrast
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ecofinstat owns shares of Apple. The Motley Fool owns shares of Apple, Facebook, and Google and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Apple, Facebook, and Google. 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.