Google Is the Best Growth Company

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

On April 18, Google (NASDAQ:GOOG) announced its earnings, and reported impressive figures. The company was able to grow by 22%, beating the analyst expectations due to solid growth from advertisement revenue. The fact that Google has maintained its performance and reputation despite severe competition from the likes of Microsoft  (NASDAQ:MSFT), Apple (NASDAQ:AAPL), and many other giants from the internet and technology industry, is commendable.

Major Source of Revenue and Cash Flows

The major source of revenue for Google is advertising. Consolidated revenue for the company went up to$13.97 billion, compared to $8.14 billion a year ago. The revenue figures fell short of analyst estimates of $14.09 billion; however, earnings beat analyst expectations.

Google has commercialized its shopping service, making product listing advertisements a major source of future growth. By pursuing product listing advertisements, Google has come in direct competition with Amazon (NASDAQ:AMZN).

A look at Google’s operating cash flows indicates that the company’s business strategy is to spend 15% of cash flows on growth-based capital expenditures, and another 21% on acquisitions. Such purchases have played a very important role in this giant's growth.

Innovation is the Way to Go

Along with acquisitions, Google has also maintained its record for technological innovations. The company has been working on a number of new projects to not only contribute to the growth of the company, but also add new dimensions to the global technology industry.

One such product to look for in the coming future is Google Glass, a wearable computer which interacts with the internet through voice commands. Critics suggest that users may take a while to fully adjust to such a radically different device.

Similarly, Google has also introduced a unique search feature called Google Now. It uses your home location in order to provide you with the relevant information like traffic conditions, weather and nearby places. It also allows the user to edit home location, work location and current location -- for example, your work location might be 100 miles away from your home location. Google Now gives you specific information about weather, traffic and other important places based on the location of your choice. Google is looking to integrate its new application with search, which will allow its functionality beyond Google Chrome and Android devices.

Competitor landscape

As I mentioned above, Google mainly competes with Apple, Microsoft and Amazon. First of all, let’s talk about the rivalry between Google and Apple.

Google and Apple’s competition mainly stems from the smartphone and tablet markets – its Android mobile OS is the biggest competitor to Apple’s iOS. Android has helped Samsung become the biggest smartphone manufacturer in the world, leaving Apple behind. Furthermore, Google is trying to position its tablet, the Nexus, in the high-end products segment in order to directly compete with Apple’s iPad. According to IDC, Android tablets (48.8%) will take the position of the leading tablet seller from Apple (46%) by the end of the current year. 

Microsoft has also launched an operating system for mobile devices, which puts it in direct competition with Google. However, Microsoft’s Windows Phone 8 is a long way behind Android and iOS.

On the other hand, the tablet market has some good potential for Microsoft, according to research firm IDC. Tablets using Microsoft's  Windows 8 have a 2.8% share in the global tablets market, which is expected to grow to 7.4% by the end of 2017.

Microsoft’s tablet, Surface, has not done well since its launch; however, the overall Windows 8 platform looks to be doing well, and that software is sure to bring in substantial revenue. Microsoft also offers cloud services through Windows Azure.

Finally, Google and Amazon mainly competed on advertising revenue. However, more recently Google’s efforts have been directed at capturing a larger chunk of the cloud market, where Amazon’s Web Services is the biggest player. Google has also launched its complete cloud computing services. Amazon does not clearly state how much revenue it gets from cloud services, but it's estimated that A.W.S. brings in about $1 billion for the company.

Google's efforts in cloud computing are not likely to hamper Amazon's progress, in my opinion. Amazon has increased its efforts to grow its infrastructure globally, and the segment has substantial potential. I believe cloud computing is still far from its saturation point, and in the short term, these giants can grow alongside each other. However, in the long term, stiff competition will start eating into these companies' revenues.

Conclusion

Google is trying to gobble up avenues for expansion in almost every segment of the technology sector. The company’s massive presence in the global markets gives it a unique advantage over its competitors. Despite a recent rally in Google's stock price, I expect its shares to rise further. The company's pursuing a lot of growth opportunities, which leaves me optimistic about its future and its prospective returns.


Ishtiaq Ahmed has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, and Google. The Motley Fool owns shares of Amazon.com, 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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