Is Google Considered Too Big To Fail?
Marcus is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
On February 20, 2013, Google (NASDAQ:GOOG) surpassed the $800 level having a company record high of $808.97. In the near future, Google may have the right of declaring membership inside an unique club, becoming a part of the company of NVR, Seaboard and Berkshire Hathaway. Can Google keep growing at its current pace?
Google is worth $262.1 billion with 2.4 million shares traded every day and has its fingers in just about any segment of technology, which includes, but is not restricted to search, mobile phone, advertisement, media, hardware, networking, and from now on Cable Service/Internet. What is considerably more amazing is that the organization has reached this power while keeping 0 long-term debt along with a PEG of 1.7. PEG Ratio is a method of evaluating shares by dividing the PE ratio by the growth rate (PEG for short). Since December 31, Google had a 9.2% one year EPS increase and also a 19.55% five-year growth. In the same year, Google had an impressive 21.5% profit margin when compared with the 11.71% sector average. Having a small PEG ratio of 1.1 as contrasted to industry's 5.7, Google possesses a solid position at this time and is tailored for a formidable future ahead.
Google's advertisement income stream continuous to run with increased volume every single year as considerably more websites are becoming a member of the Google Network, and more third-party businesses are buying the AdWord and AdSense ads. Through 2011 to 2012, total advertisement revenue improved by $7.1 billion or 19.6%. Google revenues increased by 21.5% even though Google revenue expenses raised by 30.2%. The rise in expenses is attributable mainly to an escalation in Traffic Acquisition Costs (TAC), bigger advertisement charges for the AdSense program, and greater capital management expenses. What’s concerning, nonetheless, is the fact that advertisement income presently consists of 95% of Google's entire income, and just like a non-diversified stock portfolio that worries me. In the circumstance that advertisement demand plummets at some point for any reason, Google's business structure could well be significantly maimed. Fortunately, in my opinion Google has seen this particular trap for a while and is often attempting to reduce the 95% reliance on advertisement.
As stated, Google makes profits from a number of sources apart from advertisement, such as its Android system and its Nexus 7 tablet. Also not long ago, the company has developed facilities to be used in the first Google Fiber group in Kansas City. This specific inclusion to Google's repertoire states internet connection speeds 100 times quicker when compared with existing high speed broadband, higher download speeds and a large selection of television channels. With this particular service becoming available, Google provides the possibility of snagging business away from Verizon and Comcast, integrating an additional category of income. At the moment, it is only possible to find one area where Google Fiber is provided, but since the facilities are progressively enhanced, I am enthusiastic to find out how this performs not just for Google but Comcast at the same time.
On top of that, CEO Larry Page published in May 2012 that Google would purchase Motorola Mobility (NYSE:MMI), the organization that developed the flip phone and also has recently been making tablets and smartphones utilizing the Google Android Operating System. Seven months later, the Google company subsequently joined yet another deal with Arris Group (NASDAQ: ARRS), a $1.9 billion market capitalization company with activities in the communications equipment development, to remove the Motorola Home business, the section of Motorola Mobility that is focused on supplying video entertainment solutions. I believe that one motive Google needed to sell Motorola Home is to decrease the excessive cost of revenue from the Motorola Mobility sector, since this choice was obviously not made for the objective of increasing capital.
There is very little hesitation that Google is going to increase its operations and also proceed to progress into a bigger business both in reach and market cap. Additionally, Google will end up increasingly more efficient since they try to keep costs down and maximize profit. In the near future, Google will probably be part of the $1,000 club also, but before the corporation gets that landmark, I think Google will face a small-to-conservative pullback. For nearly 4 months, Google company stocks were on a constant uptrend having small changes, however, I expect an adjustment in the stock charts just before Google starts to generate another travel up in the direction of $1,000. Consequently I state, maintain observing Google and when Google bottoms out on the unavoidable adjustment, buy in and hold for the long term.
Marcus Vilkas has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!