Google Inc: Search Positioning Will Drive Upside

Google's stock has big upside potential in the long-term due to its robust positions in major tech categories.

Jul 4, 2014 at 4:00PM

Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) strong leadership position in the global search engine marketplace has enabled the company to consistently grow revenues and earnings. Google's dominant position in search will drive big upside in mobile-based revenues. The company has significantly increased its efforts to grow mobile advertising revenues, and these efforts are likely to pay off big time in the future.

Search traffic and mobile
Google's robust search engine gives the company a huge moat, as the company has a global search market share in excess of 67%, and the company's highly targeted search ads have resonated heavily with advertisers. Google query-driven search advertising platform is not only a great product for brand advertisers, but also for local and small advertisers as well. Google's continued dominance in the search engine space is a great positive for the company's revenues and earnings. In May 2014, Google had 12.5 billion unique searches, according to comScore, well ahead of Microsoft's Bing and Yahoo!.

Google stated at its I/O conference that the number of Chrome users on mobile has grown from under 30 million at the start of 2013 to more than 300 million users currently on mobile web. This increase in mobile search will translate into much bigger search volumes and grow the search ads business of the company. In effect, Google will be able to keep smartphone and tablet users logged on to its platform for a much longer time frame, and keep them searching on Google because of Chrome. 

Last quarter, the company saw paid clicks grow 26% year over year, but cost per click was down 9% year over year. In other words, Google is selling a lot more ads, but at lower prices, resulting in a growing revenue stream from mobile search. While this might be perceived as a bad thing, Google's founder and CEO Larry Page has stated in quarterly earnings calls that he expects mobile ad pricing to increase in the long term. 

Dominant in mobile ads
Owing to such an outsized position in the search engine space worldwide, Google is taking home almost half of all advertising revenues from the mobile ad space. However, Facebook (NASDAQ:FB) has been growing its mobile advertising business at a rapid-fire pace and is now the only major competitor for Google in the mobile ad space. Facebook's market share is expected to increase from only 5.4% in 2012 to 21.7% in 2014, according to estimates from eMarketer.

Based on the market share projections laid out by eMarketer, Google should have mobile ad revenues of $14.7 billion in 2014, which is significantly higher than any other peer company, including Facebook. To get the extent of Google's dominance in the space, the company will be pocketing 46.8% market share of the mobile advertising market space, which is expected to be $31.5 billion this year. 


Source: eMarketer.

And eMarketer expects the mobile advertising to grow to exponentially by 2018 to $94.9 billion. And if Google can maintain its position as the top dog of the space, the company can earn substantial amounts of revenues from this rapidly growing category. Based on the number of growth drivers Google has, it is likely to stay ahead of Facebook, Twitter, and other rising competitors in the mobile ads space by a sizable distance.  

Going forward
Google has a major durable competitive advantage as it is the gateway to the Internet, which gives the company a large number of advantages related to monetizing user traffic.

As a result, the company will be able to earn significant amounts of revenues from the growing mobile ads market. The company's top line will benefit immensely from these secular drivers, and as a result, Google should continue to see healthy growth in its earnings per share, which will push the company's stock price higher in the longer term. 

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Ishfaque Faruk has no position in any stocks mentioned. The Motley Fool recommends Apple, Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Facebook, Google (A shares), and Google (C shares). 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.

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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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