Google (NASDAQ:GOOG)(NASDAQ:GOOGL) has built an empire of using its highly effective and targeted search advertising platform. The company has built a wide moat using a string of acquisitions that has positioned Google for out-sized success in the long run. Google has market-leading positions in search, mobile OS through Android, and online video through YouTube. And these properties will enable Google to dominate the mobile ad market for a long time.

Great position on multiple fronts
Google consistently owns more than 60% of the search market worldwide -- well ahead of its competitors. As the gateway to the Internet, it is likely to maintain that position for a very long time, providing a durable competitive advantage for the company. In addition, Google's search business on mobile devices is doing very well. According to eMarketer, mobile search ad spending in 2014 is expected to be $9.02 billion in the U.S., and Google is expected to take 65.7% market share of that pie. 

Android's massive leap in mobile operating systems has given Google a big tailwind to monetize mobile devices. According to IDC, Android's market share stood at 36.1% in Q1 2011 which surged to 81.1% in Q1 2014. Android remains very dominant on mobile OS, and it has done a great job getting such widespread adoption worldwide. 

Google's third major property that has substantial usage on mobile devices is YouTube. The online video site has more than 1 billion monthly users, and 40% of that traffic is coming from mobile devices. All these various avenues are enabling Google to earn massive revenue as more consumers are using mobile devices to connect to the Internet. 

Google leads by a large margin
With market dominance in three major technological platforms, Google is by far the biggest beneficiary of the growing smartphone market and mobile advertising spending. Online mobile ad revenues worldwide stood at $8.76 billion in 2012, and that is expected to increase to $31.45 billion in 2014, according to eMarketer. And by 2018, worldwide spending on mobile advertising can rise to as much as $94.91 billion by 2018, eMarketer estimates. 

Source: eMarketer


Google has been the biggest winner in the space, with almost 50% of the total revenue from mobile devices worldwide in 2013. It is expected to have 46.8% in the current year, according to eMarketer. Google's largest Internet competitor, Facebook (NASDAQ:FB) is playing catch-up nicely, as the social media giant saw a tremendous increase in market share in 2013 -- one that is expected to increase in 2014. 

Facebook has continued to invest heavily for future growth stemming from mobile devices. The company made two major mobile-centric acquisitions in the form of Instagram and WhatsApp, both of which should help to position Facebook to earn mobile ad dollars long into the future.

But Google is far ahead of the pack. Google's highly targeted advertising platform has attracted advertisers from across the world, and as a result, Google's ad revenues are bigger than its next five competitors combined. And the search giant should continue to see double-digit top-line growth, as it is very well-positioned to capitalize on secular consumer trends.

The search giant doesn't break out its revenue from mobile devices as a separate line item, but estimates from third-party research firms suggest it is a very meaningful portion of its total revenue. According to eMarketer, mobile made up 23.1% of Google's total ad revenue in 2013, and that is expected to increase to 33.8% in 2014. 

The bottom line
Google has market-leading positions through Search, YouTube, and Android. And these platforms will enable the company to earn substantial revenue from mobile devices. The company should see its operating margin expand in the future, after it divested the cash-burning Motorola Mobility business by selling it off to Lenovo. 

The company trades at a reasonably inexpensive valuation compared to many other peers. Google trades at 18 times its 2015 earnings. Based on future revenue growth from the numerous sources and its robust competitive positioning, the company should trade at a higher valuation.