Google Is Getting Ready for the Future

Two ways Google can get even better.

Jan 9, 2014 at 5:00PM

 It might sound crazy to suggest that Google (NASDAQ:GOOGL)with a market cap approaching $400 billion, could do even better in the future, but the company is gearing up for significant growth. There are several ways Google can improve its earnings, and they don't include Glass, self-driving cars, or any of the popular new projects the company is working on.

The more things change, the more they stay the same
Among Google's main competitors, Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) have tried to start new ventures and change direction, but they are still the same companies they were a few years ago.

For years, Microsoft has been selling operating systems and the popular Office software. Apple has transformed into a devices company and has stayed that course since the introduction of the iPod. For all of the news surrounding Glass, self-driving cars, and Android, Google's primary business is still search and advertising. In fact, roughly 90% of the company's revenue is driven by Google Sites and Network.

Though the future of Google may lie in new ventures, the company can continue to capitalize on its existing search business and improve its Motorola and Google Play business to drive both earnings and share prices higher.

The Motorola opportunity
Since Google acquired Motorola, many have speculated as to why the company made this purchase. Some believe that Motorola was a treasure trove of patents and nothing more. Other analysts have speculated that Motorola was a key to competing directly with Apple.

The biggest difficulty Google faces in promoting Motorola devices is the fact that the Android system is supported by multiple manufacturers. While Samsung, LG, HTC and others spend billions developing newer and better devices that run Android, Google can't control the system or profit as greatly as if the company produced its own devices.

In the most recent quarter, Motorola produced roughly $1.2 billion in sales. However, this represented a 36% decline in revenue, and at the same time this division reported a gross margin of just 12%. While analysts are concerned about Apple's growth and margins, the company managed a sales decline of just 4% in the current quarter, and a gross margin around 38%. If Apple has a problem, Motorola is an abyss.

The company's non-Motorola operations generated a gross margin of nearly 61%. While this compares favorably to Microsoft's consumer gross margin of 60%, or the company's commercial gross margin of over 80%, Google's margins will continue to suffer as long as Motorola lags its competition. The good news is, Google has just begun to produce devices like the Moto X that can effectively compete with Samsung, LG, HTC, and others.

If Google's Motorola division can produce even flat revenue growth on a year-over-year basis, this would be a huge win for the company.

From play to serious business
One of the consistent knocks on Google's Android system is the fragmentation and different versions of Android being used on different devices. In addition, Android has been supported by multiple app stores.

The problem with multiple stores is, customers aren't sure which ones will be available in the future, or which ones will offer the most up-to-date apps. When Google began to focus on Google Play, it seemed as if this business turned a corner. Google Play has become the iTunes of the Android universe.

This is a key component of each of the competing mobile ecosystems. iTunes generated over $4 billion in revenue for Apple in the most recent quarter. Microsoft's Windows Store is a key factor in the company quickly becoming the default third ecosystem. By comparison, Google Play generated $1.2 billion in revenue in the most recent quarter, and this division grew revenue by 85% on a year-over-year basis.

Just to put the size of the Android ecosystem into perspective, the company reportedly activated over 900 million devices in just the first five months of 2013. By comparison, Apple sold around 50 million devices in the company's most recent quarter if we include iPhones, iPads, and iPods combined. If Apple can generate over $4 billion per quarter in iTunes sales, it seems reasonable that Google should be able to produce at least this much.

Billions in sales and just getting started?
Google continues to drive earnings growth, even with challenges in the Motorola business. As the company produces new Motorola devices with tight Android integration, and Google Play continues to evolve, Google's sales growth might improve further.

If the company can turn one of its newer ventures, like Glass or the promise of self-driving cars, into a broad based reality, this could be an opportunity worth over $300 billion hiding in plain sight.

Getting in on the technology revolution
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Chad Henage owns shares of Apple and Microsoft. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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