5 Catalysts That Could Propel Google to $1,000
Robert 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) shares hit an all-time high last week surpassing $800, and now investors are wondering if the stock can crack the $1,000 milestone? While a four-digit share price may seem extravagant, Google has several catalysts that could propel the stock to $1,000.
Google is sitting on a $48 billion cash pile representing almost $150 per share. In 2012, the company generated $16.5 billion in operating cash flow. Google could easily afford to initiate a large dividend or share buyback program providing a quick jolt for the share price.
Cash-bloated corporations are beginning to face pressure from shareholder activists. Last week, hedge fund manager David Einhorn won a court settlement against Apple (NASDAQ: AAPL). The lawsuit challenged management's controversial proposal to limit the issuance of preferred stock and is part of Einhorn's broader effort to unlock Apple's $137 billion cash pile.
Apple only represents the beginning in the fight for cash sitting on corporate balance sheets. Expect more boardroom scuffles if companies don't begin paying dividends to shareholders.
As of September 2012, there're now more than a half a billion activated Android devices globally with 1.3 million new gadgets added each day.
The represents a huge opportunity for Google to monetize into additional advertising revenue. The company launched its "enhanced campaigns," which encourages greater use of mobile ads. Google’s cost-per-click, the rate advertisers pay every time a user clicks a banner, is expected to increase in upcoming quarters as the company starts charging higher prices for smartphone and tablet advertisements. Confirmation is Google is gaining traction in mobile by raising rates would be a big boost for the stock.
Google is also rumored to be launching its own smart phone this summer called the Motorola X. By releasing its own handset, Google would grab a piece of Android’s hardware sales rather than just relying on advertising revenue.
The move would also counter Samsung's (NASDAQOTH: SSNLF) growing role in the Android ecosystem. Samsung accounts for 40% of all Android device sales and there are concerns that the company could leverage its position to negotiate a slice of ad revenue or advance release of future products. By developing its own handset, Google would limit Samsung’s bargaining power.
Last week, the Wall Street Journal reported that Google may have plans to launch its own brick and mortar retail stores. Google Store would act as a showroom allowing customers to interact with the company growing portfolio of hardware products.
Rumors of Google's expansion into retail were greeted very positively by the Street last week and any confirmation of the initiative would send shares higher.
The global economic recovery is gathering momentum on several fronts:
China: The Bank of China has been loosening monetary policy, shifting its stance from fighting inflation to generating growth. Economists project the country's GDP to increase 8.1% in the fourth quarter.
United States: America's energy, automotive, and real estate industries are booming. Consumer spending is on the rebound and equity markets are approaching all time highs.
Europe: It appears the worst of Europe's sovereign debt crisis is behind it. Yields on government bonds have been in steady decline. An imminent breakup of the Euro, a real fear two years ago, now seems unlikely.
Accelerating growth will provide a positive tailwind for advertisement spending in 2013. Expect analysts to begin raising Google's earnings and revenue projections as the broader economic picture brightens.
Foolish bottom line
A $1,000 price tag wouldn’t really stretch Google's valuation. If shares hit the milestone today, the stock would be trading at 18 times forward earnings. Assuming a 15% earnings growth rate, Google would sport a 1.2 PEG ratio, roughly in line with other large cap tech names like Microsoft or Yahoo.
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