With shares of Google (GOOG +3.71%) comfortably above the $1,000 mark, it's always good to check your investment and see whether or not the stock is still fairly valued.
Strengths
Brand: Google is a verb. It is synonymous with search, enough said.
AdSense: This advertising platform for affiliates is the leading program on the web, and it has very little in the way of competition. While margins for the traffic brought by affiliates is lower for the company, Google continues to profit from the overall growth in traffic on the Internet and as more content is created by independent partners.
YouTube: YouTube is an extension of AdSense, and it now enables partners as well as Google to monetize the evolution in technology which allows anyone to create videos. It also acts as a major access point to launch premium content channels, which Google has already announced it plans on doing.
Loyal employees: There is ample evidence from around the web of how much employees like working for Google. With a high-margin business, Google can afford to lavish its engineers with exciting opportunities, trips, and free gourmet food in the cafeteria. Say what you will about what the company spends, any business with employees who are generally excited to show up for work and contribute is a business that I want to own.
Android: Google currently dominates market share in the mobile world, with the Android operating system on . While it is true that Apple (AAPL +1.96%) still dominates the high-end market, Google is positioning itself to generate data from literally billions of people around the world. This, believe or not, is more important to its search engine moat than its algorithms.
Embedded in our lives: People trust Google with their contacts, photos, email, data, and other information. This isn't just users of Android, either, but iPhone and Windows users as well.
Balance sheet: Believe it or not, Google has $6.25 billion in land and property along with a cash horde of $50 billion and growing. To contrast this to competitors, Apple has $150 billion in cash on its books, as of the end of September 2013. Google's cash can be used for acquisitions, or possibly to deluge Congress with lobbyists when the company perfects the driverless car.
Weaknesses
Motorola: While there is no doubt that Google bought Motorola for its patent portfolio, the company still bleeds nearly a billion dollars a year.
There is an excellent article on theverge.com discussing the acquisition in greater detail.
Ad Based Revenue: In excess of 85% of Google's revenues are generated from ads. As an investor, it's always nice to have a diversity of revenue streams coming to you.
Mobile Ads: As consumers shift to mobile phones, Google's advertising rates have declined. While there's no doubt that Google is feverishly working to bring ad rates up on mobile devices, this naturally remains a point of concern among investors. This tempered somewhat by the fact that the number of overall searches increased.
Opportunities
Driverless cars: It's no secret that Google has been developing a driverless car for the last several years. While it might take another decade to bring to market, the potential of this invention is literally in the trillions of dollars.
The world will benefit so tremendously from this being deployed that it's difficult to account for or predict the financial rewards or the ways that these cars will make our lives easier.
Google Fiber: Bringing ultra-high Internet speeds to the United States will increase the ease of access and the overall use of the web. Not only that, but Google will eventually show a profit on this investment. It will spur providers like Verizon and AT&T to increase both the reliability and speeds of their offerings under the threatening cloud of competition.
The cloud: Google is fast becoming a major player in the cloud. It will be leveraging its massive computing infrastructure to compete with the likes of Amazon, Microsoft, and Oracle.
Threats
Social media: It's no secret that the one avenue Google fell behind in on the Internet was social media. With Facebook (FB +6.50%) reigning as the 800-pound gorilla, there is no doubt that it is trying to use its users' data and tendencies to develop a superior search engine. Facebook, at this time, undoubtedly remains the biggest threat to Google; its alliance with Microsoft only makes it stronger.
Valuation: With a valuation of 29 times current earnings, investors are certainly betting on continued growth from the company. Should the company stumble, though, its stock might see a rapid decrease in price.
Final thoughts
Unless Facebook somehow upends Google with a superior search engine, there is no doubt that this company remains well positioned for future investor returns. If the driverless car somehow successfully gets deployed sooner than later, Google might very well become the world's first trillion-dollar company.
