Google: Strengths, Weaknesses, Opportunities, Threats

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

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. Fresh off their third quarter earnings report, which was leaked prior to the official release date and resulted in the stock plummeting nearly 10% intraday, I would like to focus on Google (NASDAQ: GOOG).

Strengths:

  • Google possesses one of the most globally recognized brands in the world, and brand loyalty is strong  
  • Their platform is ideal for advertising purposes, as customers have to input what they are in search of, which in turn allows Google to charge more for advertisements
  • Despite the earnings miss, the company still possesses decent year over year growth in the earnings department: nearly 10% from 2011 to 2012 (forecasted)
  • The company carries a price to earnings ratio of 21.15, just slightly above the S&P 500 average, and is relatively low for a company with such growth prospects
  • Their Android software platform does not make the company any money; however, it allows Google to reach the mobile market, and thus generate more revenue as they are able to run advertisements on this platform

Weaknesses:

  • Google offers many services: Android, search, e-mail, photo and video sharing, Google drive, YouTube, Google maps, and many other services for free, and these services cost a lot of money and labor to update and run
  • Sales from 2011 to 2012 are forecasted to grow upwards of 40%, while earnings will only grow around 10%, displaying an increased pressure on margins
  • The company does not pay out a dividend and has not expressed any plans to do so in the future
  • Google’s situation in China is becoming more and more nerve-wracking each day, as just recently Google announced they would alert users of Chinese censorship
  • Google is “rivals” with some of the largest and most powerful companies in the world (Microsoft in the search engine market, Apple in the mobile software market) and playing this game can be very expensive

Opportunities:

  • In China, a massive internet market, Google possesses 16.6% of the market, second by a large margin to Baidu, so the company still has a lot of room to grow in this massive market
  • Just recently Google acquired Motorola Mobility, and with it the company's large portfolio of intellectual property; but the true opportunity is found in rumors that Google is planning to sell Android devices directly to the consumer
  • If Google could handle both the hardware and software sides of the Android devices, like Apple does with its iOS and iPhone, Google would rake in much greater profits
  • Google+ puts Google’s foot in the fast-growing social media market, and should allow the company to create more advertising revenue
  • Google has a long history of acquiring companies to help advance its innovation prospects, and it seems inevitable that sooner or later the company will strike again

Threats:

  • While Google is still in the premier search engine in the majority of the world, Bing and other competitors are beginning to duplicate Google’s success
  • Even in the first quarter that Google held Motorola Mobility, this segment of their business generated an adjusted loss of more than $151 million
  • If in some scenario Google lost their ability to effectively reach the customer with advertisements, they may have to charge for their services, which in turn would drive customers away
  • One of the biggest threats to Google’s success is the Chinese government, as long battles have raged between the two, and without the Chinese government on their side it is unlikely they will ever gain much traction in one of the largest internet markets in the world 

Competitors

Major publicly-traded competitors of Google include Baidu.com (NASDAQ: BIDU) and Microsoft (NASDAQ: MSFT). Baidu is the leading search engine in China, and battles ferociously with Google for market share. Microsoft recently launched its version of the search engine Bing, and since has launched an advertisement campaign in favor of Bing.

Conclusion

Google has many strengths, weaknesses, opportunities, and threats in its business; however in the end appears to be a strong company with a bright future. The world is relying more and more on the internet each day, and at the forefront of this revolution is Google, making it a tremendous investment for the future.


makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of Baidu, Google, Microsoft, and Yahoo!. Motley Fool newsletter services recommend Baidu, Google, Microsoft, and Yahoo!. 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.

blog comments powered by Disqus

Compare Brokers

Fool Disclosure