Here’s What Google’s SWOT Analysis Revealed
Steven is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Before investing in a company, it’s a good idea to get a sense of its overall picture. A great way to accomplish this is with a SWOT analysis. It examines a company’s strengths, weaknesses, opportunities, and threats, in a manner that makes it easy to gain perspective. Once you’ve considered these factors, it makes it easier to determine how the growth story factors into the equation.
Let’s examine Google (NASDAQ: GOOG) to better understand the bigger picture.
- Search leader. Google’s search share in the US remains stable at 66%.
- Effective advertising model. Google’s advertising conversion rate is three times higher than the industry standard.
- Smartphone king. More than 52% of all smartphones run Android in the US. The company fully expects mobile to be an $8 billion business by the end of the year.
- Video gargantuan. In the month of August, YouTube served over 13.7 billion videos in the US alone. For perspective, the closest competitor served 725 million.
- Core revenue growth. Excluding Motorola, revenues have grown 19% from the previous year. This growth has been fueled in part by paid clicks increasing 33% year over year.
- Large international presence. As of the most recent quarter, 53% of total revenue came from overseas.
- Wide moat. Google has over $45 billion in cash on its balance sheet to weather the roughest of storms.
- Household name. “Google it” has become a common phrase.
- CPC woes. Google’s average cost-per-click remains a problem. Last quarter, CPC rates were down 15% from the previous year, and 3% sequentially. However, about half of this decline can be attributed to unfavorable currency conditions. Still, the main driver behind this trend is mobile advertising. Simply put, mobile clicks aren’t as valuable.
- Mobile monetization. Even though mobile users are twice as likely to click on ads as their desktop counterparts, they are half as likely to purchase something. This is why mobile ads are not as valuable to advertisers.
- Motorola. While this acquisition gives Google more insight into the manufacturing world, it’s been a drag on the business. Most recently, Motorola reported an operating loss of $527 million on $2.58 billion in revenue.
- Online video. I believe online video is a megatrend in the making. To recap, if Google can adopt a model similar to television, there is over $64 billion in television advertising dollars at stake. Considering YouTube’s unfathomable size, online video advertising has the potential to be a game changing opportunity for Google.
- Improved mobile monetization. Google has to invent a new way to advertise on mobile mediums to raise the CPC rates discussed earlier. If they can succeed, Google will create the gold standard of mobile advertising.
- Chromebooks. Google finally released a laptop worth buying, and priced it at an impulsive $249. For the price, you cannot beat the build quality. In this iteration, I see massive potential for a Google inspired laptop to start taking hold.
- Social networking. Google+ is a bit barren and has yet to captivate the masses. Given Google’s history of innovation, this may not be the last we hear of Google+. In the years ahead, I fully expect more reasons to compel users to migrate over to Google+.
- Driverless cars. If same day package deliveries by a fleet of driverless cars is Google’s idea of a fun new business, consider me sold. Not only would this change the world of shipping and commerce, it would create an unprecedented opportunity for Google.
- Augmented reality. Project glass is only the beginning of this endeavor. If Google’s vision of the future is correct, we are all going to be walking around with devices that overlay useful information to the world around us.
- Google Fiber. Google is building an internet service that’s one hundred times faster than current speeds, all for the monthly price of $70. It’s going to take years for this to gain momentum, but if it does, it has the potential to dismantle the broadband industry’s monopolistic grip.
- Digital wallets. Also in its infancy, digital wallets are a huge opportunity for Google. There are some hurdles to overcome before this trend takes hold, but Google is in great position for when that happens.
- Apple (NASDAQ: AAPL) gets more competitive. In the past year, we’ve seen anti-Google behavior out of Cupertino. So far, it’s all been related to Google’s role in Apple's mobile devices. First YouTube was ditched as a standard app, and now Maps isn’t powered by Google. Anymore Apple hate might prove problematic for Google.
- Microsoft (NASDAQ: MSFT) starts winning. Team Redmond is a sleeping giant. The right moves could bring this beast back to life. Indications suggest it’s unlikely at this point, but the Surface could surprise and mesmerize the masses. To boot, they aren’t afraid of making big acquisitions that could prove disruptive to Google’s business.
- Facebook (NASDAQ: FB) figures out how to advertise better. One potential way I see Facebook increasing its average revenue per user is by monetizing user videos. On top of that, they could begin offering a larger selection of premium videos for consumption. Given their billion plus user base, this would only create headaches for Google.
- IBM (NYSE: IBM) Watson could kill Google search. I’ve written about this premise before and I believe this technology poses as a unique threat to Google’s business.
The purpose of conducting a SWOT analysis is to gain perspective of a potential investment. In the case of Google, I’ve uncovered only a handful of weaknesses, and a much greater number of strengths. Going forward, Google has some very exciting opportunities ahead of itself. They've made me optimistic that Google will overcome the threats and weaknesses I've outlined. In the end, Google appears to be an excellent candidate for a long-term investor.
TopDownTrends owns shares of International Business Machines. The Motley Fool owns shares of Apple, Facebook, Google, International Business Machines, and Microsoft and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Apple, Facebook, Google, International Business Machines, 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.If you have questions about this post or the Fool’s blog network, click here for information.