The Juggernaut in Tech
Alvin 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) Android looks unstoppable. In Q4 2012, Android captured 70.1% of total smartphone shipments worldwide. Its closest competitor, Apple (NASDAQ: AAPL) iOS, was a distant second with a 21% market share. However, the real differentiating number is Android’s year over year growth rate. Despite rising competition, Android’s unit shipments grew 88% year over year to 159.8 million units. In comparison, the entire smartphone market grew 41.7% (IDC).
Out of the top five OS’s, only Android and Microsoft (NASDAQ: MSFT) Windows Phone outpaced the growth rate of the industry. Windows Phone posted a 150% increase in unit shipments. Also, out of the top five OS’s only Android and Windows Phone gained market share. However, in the case of Windows Phone, the big percentage gains are much less impressive because it only has a 2.6% market share. Only six million Windows Phone smartphones shipped worldwide versus the 159.8 million Android smartphones that shipped.
Overall, no competitor is really in a good position to stop the Android army. Android has a huge lead in market share, the OS is licensable, and it is free. These factors put competing OS’s at a huge disadvantage. Apple and other companies that do not license their OS are at a disadvantage because Android ships on hardware from multiple vendors. A big part of why Android is winning is simply its presence in a huge number of devices.
On the other hand, Microsoft and other companies’ that license their OS are at a disadvantage because Android is free. In addition, Android has a huge lead in market share and it is difficult to convince people to switch from a UI that they are already used to. Lastly, Android’s dominance in smartphones looks to be spreading to tablets, where Android recently pushed Apple’s market share to below 50%.
The dominance continues
In addition, Google continues to be dominant in its home turf, the internet search engine market. According to netmarketshare, in the month of January, Google had a market share of 89.93% in mobile devices. In desktop, Google had an 83.46% market share. The numbers have not changed much from the past. In February 2011, Google had a 94.3% market share in mobile and an 84.47% market share in desktop. While the numbers fluctuate, Google has proven that its search engine is an unassailable fortress.
Google’s dominance has translated to continued growth in income. In the last five years, Google has a compound annual growth rate (CAGR) of about 25%. For fiscal year 2012, Google’s net income increased 10% year over year. Those are strong growth numbers for a large company. Most importantly, Google’s growth in net income is back on track after Q3. In Q3, GAAP net income fell by 20% year over year. In Q4, net income increased 6.6% year over year.
Google’s business is advertising and the emergence of mobile devices brings opportunities and problems. Looking at advertising, in Q4, Google’s CPC continued its decline, declining by 6% year over year. However, Paid Clicks increased by 24% year over year and 9% sequentially.
Furthermore, in Q3, Paid Clicks increased 33% year over year and 6% sequentially. While the amount of revenue Google makes per click in mobile is less than on desktop, Google is able to compensate with higher volume. Mobile device users have access to the internet almost everywhere they go. This means more internet browsing and more opportunities to display ads for Google.
In addition, Android’s dominance drives users to Google. As was previously stated, Google’s search dominance in mobile is greater than on desktop. Overall, Google should continue its growth despite the difficulties in mobile advertising.
The bottom line
Google is dominant and none of its competitors are really a threat to its dominance. Android is the king of mobile devices and the Google search engine is the king of search engines. At the time of this writing, Google is trading at a PE of about 24.7. However, Google has a tangible book value per diluted share of about $160.
Taking into account the tangible book value, Google has a PE of about 19.4. While this is not a cheap valuation, Google has a lot of potential. The company is in the middle of the mobile device revolution and the internet. Overall, Google has plenty of ways to grow profits and this valuation is a fair price to pay for the juggernaut known as Google.
iamgreatness owns shares of Microsoft. 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!