It's hard to bet against Google (Nasdaq: GOOG ) as the king of tech.
The world's leading search engine gobbles up market share and earned its recession-resistant stripes by being one of the few online advertising specialists to grow during the market's brutal downturn.
The company, which hit a fresh 52-week high this week, is laying the groundwork for continued gains next year through timely acquisitions, a serious push into mobile, and $22 billion burning a hole in its back pocket.
2009 in review
Google has been padding its lead in online advertising this year. Its latest quarter may not seem like much -- with revenue growing a mere 7% over last year's third quarter -- but stack that performance against Yahoo! (Nasdaq: YHOO ) , AOL (NYSE: AOL ) , IAC (Nasdaq: IACI ) , ValueClick (Nasdaq: VCLK ) , and other fading dot-com rivals with dwindling results.
Google wasn't immune to advertisers scaling back on their e-marketing budgets. It simply made the difference up in volume. Google delivered 14% more ad clicks during the quarter, overcoming the 6% smaller sums sponsors paid per lead.
The real beauty behind Google's well-oiled machine is that margins expanded to the point that the search titan's profitability soared 27% during the period, twice as much as analysts were expecting.
Google isn't perfect. It may never overtake Yahoo! in Japan or Baidu (Nasdaq: BIDU ) in China. It still has way too many eggs in the online advertising basket -- which may seem like a great idea now, but makes the company susceptible to someone concocting a better search engine mousetrap or to advertiser backlash against click fraud.
However, if an imperfect Google is enough to deliver the kind of financial results that Google has in its first five years as a public company, it's hard to bet against its chances in the future.
2010 in preview
Google has $22 billion in cash and short-term investments on its balance sheet. The company has occasionally cracked open that pinata to buy YouTube, DoubleClick, and its most recent pending deal for AdMob, but it usually settles for small deals that barely move the needle.
The company's $750 million AdMob deal is important, putting Google deeper into the realm of mobile advertising that dovetails perfectly with its paid-search prowess.
Google will close out 2010 as a bigger force in the mobile space. We've already had several wireless handsets built on Google's Android platform, most recently Motorola's (NYSE: MOT ) Droid, backed by a $100 million marketing campaign.
This week's buzz suggests that Google will release its own phone directly to consumers as early as next month, though it's easy to be skeptical.
However, what we do know is that Google is planning bigger inroads into Web browsers and mobile operating systems. If Big G wants to stay on top of the online advertising heap, it has to make sure that it's accessible through any and all wired gadgetry. Having phones, computers, and tablets powered by Google makes it that much easier to keep a rival search engine from bumping it as the portal of choice.
Analysts see revenue growth accelerating to 17% next year. Wall Street is banking on a modest 16% gain on the bottom line. Don't read too much into that. The pros have a habit of underestimating Google's profit potential. The company has beaten market guesstimates in each of the past five quarters.
Google shares have more than doubled off of their lows in March. Investors shouldn't get greedy, because Big G is unlikely to double again over the next 10 months. However, the market has forgotten what Google is truly capable of when it has advertisers in its pockets, a booming economy, and the story-stock glow of a company that may still be early in its growth cycle, given that so much of the world remains unwired.
Google could very well be the tech stock to own in 2010 -- and beyond.
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