Google in 10 Years

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

I am a bull when it comes to Google (NASDAQ: GOOG).  Not because it is a steal in terms of valuation, nor because it is the most popular search engine in the world, and not because I am convinced that they will execute the transition to mobile to capture advertising dollars.  I am a bull when it comes to Google because of its unapologetic aggressive obsession with Research & Development. 

Google consistently invests 20% of its profits in its quest to re-invent itself:

  • 2009: Gross Profit $14.8 billion, R&D $2.8 billion
  • 2010: Gross Profit $18.9 billion, R&D $3.8 billion
  • 2011: Gross Profit $24.7 billion, R&D $5.1 billion
  • Estimated 2012: Gross Profit $29.3 billion, R&D $5.8 billion

On top of that, Google is not afraid to go out and make bold acquisition moves.

Despite their formal focus on “being the best at Search,” Google understands better than anyone that every morning it has to get up, look in the mirror, and ask itself if its current business model will be sustainable over the long term.  Google challenges itself each and every day to make sure that it will not only return value to its shareholders today, but especially tomorrow.  

How have those dollars manifested themselves? 

  • Android – the world’s most popular mobile OS
  • Chrome - the world’s most popular internet browser (it beats Explorer by about 1% global market share)
  • YouTube – the world’s most popular online video service
  • Google Driverless Car – essentially the development of technology to create self-driving vehicles
  • Google Fiber – a vertically integrated business that offers super, super, super high speed connectivity of 1Gb, including TV at much more reasonable prices.  FIOS pales in comparison.

Notice a trend?  Though the jury is still out on their Motorola acquisition, Google's track record should give you a high level of confidence that they will drive value for their shareholders out of their R&D and Acquisition initiatives. 

So what will Google look like as a business in 10 years time?  It will not just be about Search anymore.  From what is public knowledge I can see the following new revenue streams:

  • Licensing Driverless Technology:  The National Auto Dealers Association estimates that 13 to 14 million new cars will be sold in 2012.  Globally that is about 60 million today.  Let’s say that Google will be able to sell this technology for $1,000 per vehicle, and that 5% of all new vehicles purchased will have that technology; for Google that will mean a $6 billion business unit.  Given the growing population worldwide and the continuing development of emerging countries, I do not think those numbers are that crazy. 
  • Communications: Google Fiber in Kansas City is not just a trial.  It is the start of Google’s ambition to disrupt the US communications market, via technology, price, and content.  It is not too far fetched to see Google transforming YouTube into a Broadcasting channel even creating its own productions: GoogleNews or GoogleSports?  Combine that with Google’s brand power, and the Media & Entertainment sector better watch out.   CableVision (NYSE: CVC) is a $7 billion per year business.  That includes revenues from cinemas as well, but they basically operate in the Tri-State area.  Time Warner Cable (NYSE: TWX) is a $20 billion per year business.  It it too far fetched to see Google Fiber become a $15 billion per year business unit?  I think that is conservative.
  • Then there is the potential of Google turning Motorola into Apple’s worst nightmare.  Today Motorola is an $11 billion per year business.  Apple is a $150 billion per year business, most of which is generated by the sale of iPhones and iPads.  The potential is huge.  Is it too crazy to think that Google can take market share away from Apple and grow a device business into a $30 billion unit?  I would not underestimate them.

Who knows what else Google has up its sleeve?  All I know is that the company has delivered for its shareholders for years.  I see numerous opportunities to double or triple their business over the next 10 years, without taking into consideration growth in areas such as mobile advertising revenue and cloud services.  The stock is dirt cheap.  They think BIG.  Their management is superb.  Google is a screaming buy.

BEF1973 has no positions in the stocks mentioned above. The Motley Fool owns shares of Google. Motley Fool newsletter services recommend Google and Time Warner. 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.

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