Why Facebook Should Pay More Attention to Google

By Ryan Guenette - August 6, 2012 | Tickers: AOL, FB, GOOG, MSFT, YHOO | 0 Comments

• Email
• Print

Much of the recent hype on Wall Street has been revolving around Facebook (NASDAQ: FB). As the social networking has fallen well below its initial public offering price of $38  on its way to the meager current price of just over $21, Google (NASDAQ: GOOG) has continued to return solid gains to its investors. While Facebook has declined over 42% since May 18^th, Google has increased over 1.5%. Much of Google’s growth has been driven by its effective advertisement platform. Advertisements on Google are targeted directly at the consumer’s interests, as they input what they are in searching for. On Facebook, advertisements are only based on the user’s interests, but an interest may not lead to a direct buy. This dilemma has forced sponsors such as General Motors to pull their advertisements from Facebook, as honestly, if consumers see a car advertisement on the side of the page, are they going to even look at it? Facebook’s lack of a solution to this problem has displayed falters in the business model, prompting the stock to make new lows daily. So if you want to be in the internet sector, and are considering Facebook and Google, choose the latter; and here is why.

Consistent and Persistent Growth

In 2010, Google reported earnings per share of $26.30. In 2011, Google stated that its earnings per share had grown $3.50 to $29.80, representing 13.31% year over year earnings per share growth. The trend of double digit growth is regular behavior in Google’s growth trend, and is expected to continue into 2012. In 2012, the average consensus projects Google deriving $35.80 of earnings per share from its business, displaying 20.13% year over year earnings per share growth. The trend of double digit growth is anticipated to further extend into 2013, as the Street projects Google’s earnings per share rising 17.04%, to $41.90. In 2014, analysts believe that Google’s earnings per share will expand $7.50, to $49.40, showcasing 17.90% year over year earnings per share growth. The below chart displays Google’s sales, operating profit, net income, net margin, operating margin, and earnings per share over the coming years.

Long-Term Sustainable Growth Strategy    

Between 2001 and 2004, the majority of Google’s resources were pinpointed on refining its search engine capabilities and experimenting in several other sectors. This time period spanned over years in which Google was still a private company. From 2005 to 2007, Google put an enormous task force on productivity software, such as Google Docs. In addition, the company focused on developing the Android platform, which has been and will continue be a substantial source of revenue. Later, from 2008 to 2009, Google concentrated on monetizing mobile platforms through advertisements, as well as struggling to make YouTube a source of positive revenue. From 2010 to the present day, Google has been turning its attention to social networks and mobile devices. By acquiring Motorola Mobility for $12.5 billion, Google is acquiring 14,600 granted patents and 6,700 pending patents that will help enable it to better protect Android against threats from Apple, Microsoft, and others. As press release puts it: “The acquisition of Motorola Mobility, a dedicated Android partner, will enable Google to supercharge the Android ecosystem and will enhance competition in mobile computing.” Google also entered the high-growth social networking industry by launching Google+. Furthermore, its expansion strategy has always focused around acquisitions, such as the Motorola Mobility deal. The chart below displays the number of acquisitions from 2001 to 2010.

Google’s growth strategy revolves around reinvesting in its core business, entering new, fast-paced growth industries, and acquiring businesses that will assist in its expansion.

What Search Engine Do You Use?

Compared to some of Google’s largest competitors, such as Facebook, Yahoo! (NASDAQ: YHOO), Microsoft (NASDAQ: MSFT), and AOL (NYSE: AOL), Google Incorporated stacks up favorably.

In terms of growth, Google is second to only Yahoo!, while AOL stands out to the downside. The only company that pays out a dividend is Microsoft, which yields 2.71% and is growing the dividend rather considerably. In the fundamental ratio comparison, Google is slightly above the S&P 500 average of around 15, yet when growth is taken into account, Google is the cheapest company in the sector. In the net profit margin comparison, Google is in the middle of the pack, while AOL stands out to the downside.

The Foolish Bottom Line

Google has become associated with the evolution of the internet, as it possesses a monopoly on the search engine industry. Google is extremely diversified, operating as a search engine, a social network, and a mobile device platform. Google also has a successful and effective advertisement platform, something that Facebook has yet to master. All in all, Google may face short-term volatility, but it has its hands in nearly all of the long-term trends related to the internet and the shift to mobile devices; it is a great addition to any portfolio. 

• Email
• Print
• Feedback