Why It's a Good Time to Buy Google

The economy has affected all sectors of the world economy and there is not a single area that has not felt the pain. Retail, autos, health-care, finance, non-profit, government, manufacturing, services, consumer staples - all have suffered in some form or another. One of the areas hit hardest is Media.

Anyone affiliated with media agencies, service providers, newspapers, television and radio will tell you that business is down significantly, circulation of newspapers and magazines are staring at an accelerated decline, advertisers have tightened their belts and as a result, a lot of agencies have shut down completely.

According to the U.S. Local Media Annual Forecast (2008-2013) by BIA Advisory Services and the Kelsey Group, advertising in traditional media such as television, radio, magazines, newspapers, direct mail and print Yellow Pages will decline from $141.3 billion in 2008 to $112.4 billion in 2013, a loss of over 20% in 5 years. In 2009 alone, Newspaper advertising will decline more than any other medium, going from $37.9 billion in 2008 to $31.9 billion in 2009, a drop of almost 16% according to eMarketer. TV ad spending too, will decline by 4.2% in 2009, to $66.9 billion.

Contrast this with digital media - internet, mobile, display ads, search advertising, video ads etc. This segment of the media business is set to increase by 129%, from $14 billion in 2008 to $32.1 billion in 2013. In other words, digital media will jump from being 10% of all media spend in 2008, to 30% of all media spend in 2013.

So why is traditional media suffering when digital media is thriving? The economy, as I mentioned above, is the number one culprit. However, there is another event taking place. More and more people are consuming digital content than ever before, and consuming it for longer hours than they watch television, listen to radio or read newspapers. Whether it is in the form of social networking on Facebook, LinkedIn or MySpace, or in the form of consuming video content on YouTube or Hulu, or simply reading the news on CNN.com or WSJ online, the internet is fast catching up to the current (but not-for-long) champion of media - the Television.

Moreover, audience participation and interaction to advertising on the internet can be monitored, tracked and reported a lot more easily and accurately compared to other media outlets, so businesses want to pour their budgets more and more into the internet for the sake of being able to track their revenues back to the spend.

The one internet giant that stands to benefit from this shift is Google (GOOG). It has over 70% of the internet search market. Competitors like Yahoo (YHOO) and Microsoft (MSFT) either don't have the focus or the technology to compete with them while they keep rolling out innovative ways to capture the internet audience.

Since November 2007, Google has seen its stock price tumble from around $750 to $330 last week (although it has dipped below the $300 mark on a couple of occasions in the last four months). The time to consider buying Google is now. It is trading at less than 14 times earnings and has over $15 billion in cash. With media trends pointing to this shift from traditional media to digital, you can rest assured that Google stands to be the primary beneficiary.

Full Disclosure: I do not own Google, but my position can change anytime without notice.

Comments

[yellowhoard:]

I don't know about the timing, but Google seems to have the wind in their sails.

Mar 22 10:48 AM

[Marcap:]

I'm not sure I agree with this being a good time to buy Google. In fact, quite the opposite may be true. Google appears to be branching out in far too many directions, trying to be everything to everyone, while providing nothing to those who actually invest in the company. This may very well result in its downfall as it perhaps loses focus on its core business...being a search engine.

Unfortunately this was eBay's big downfall. It lost focus on being an auction site. And of course, we all see the result that had on eBay and its shares. Will Google be next to suffer the same fate?

This SA author appears to somewhat agree...

seekingalpha.com/artic...

Here too is an interesting story...

"Google: Beware the eBay Curse"

www.businessweek.com/t...

In any event, I see no real value in Google shares beyond their current price. Unfortunately there was far too much hype to drive shares so much higher a year or so ago, only to quickly fall after reality sunk in. I suspect this to be just another such hype. I'm sure I'll get no argument from those who actually did fall for all the hype when Google was trading in the $600-700 range.

Mar 22 11:45 AM

[coyotebait:]

Faisal,

Too right.

If you can't buy Google at this level, you shouldn't be buying anything but gold (or Akamai?).

The soon-to-be ubiquitous global utility we call the Internet is essential to recovery; Internet advertising is essential to nearly all would-be survivors of the crunch, a place where Google Search is, for the foreseeable future, the undethronable king.

In the recovery era of the Great Depression, GM and Ford never looked so good. Then recovery was the industrial revolution fueled by the productivity of the production-line; today's recovery will depend upon the technological revolution, to be fueled by the productivity of the Internet to reach people instantaneously with whatever good or services a company wants to sell. ...Google is a screaming buy.

Disclosure: Long GOOG and AKAM. Looking to accumulate AMZN and AAPL (and gold) on weakness.

CHOMPS,

^__^

..

Mar 22 12:59 PM

[waf76:]

its always a good time to buy google if ur holding long term

Mar 22 02:16 PM

[Paul H. M.:]

Google has a lot of cash and some good prospects.

But if Google had no downside risk, institutional investors would have driven the price higher by now. One main risk:

- More an more specialized search sites are popping up, that make it easier to find what you want then searching on Google.

- Microsoft owns Facebook, which is quickly becoming the number one social networking site. They could use this as leverage to launch a competitive search portal.

- Google produces nothing that could not be easily copied. Unlike Intel or Apple (even if you copied them, building enough factories and delivery channels to compete with them would be very challenging), they don't have much barrier to entry for competing products.

Almost any coder could build a search engine with some type of ad technology. All they need is a popular portal, like Facebook, to point people to a possibly newer and better search engine.

Mar 22 02:56 PM

[User 381030:]

I agree with your comment Paul, mainly that while Google is currently very dominant, we can't be 100% sure that they will be the winner. Although very highly favored. Search is still involving and with the changes in technology who knows what the landscape will be like 10 years from now. Additionally search is also becoming localized with sites such as Jippidy.com providing what may potential become better specialized results. My point is a landscape is still very dynamic so don't such look at Google's price and conclude that's its cheap based on where its traded in the past.



On Mar 22 02:56 PM Paul H. M. wrote:

> Google has a lot of cash and some good prospects.
>
> But if Google had no downside risk, institutional investors would
> have driven the price higher by now. One main risk:
>
> - More an more specialized search sites are popping up, that make
> it easier to find what you want then searching on Google.
>
> - Microsoft owns Facebook, which is quickly becoming the number one
> social networking site. They could use this as leverage to launch
> a competitive search portal.
>
> - Google produces nothing that could not be easily copied. Unlike
> Intel or Apple (even if you copied them, building enough factories
> and delivery channels to compete with them would be very challenging),
> they don't have much barrier to entry for competing products. <br/>
>
> Almost any coder could build a search engine with some type of ad
> technology. All they need is a popular portal, like Facebook, to
> point people to a possibly newer and better search engine.

Mar 22 11:16 PM

[currency x com:]

On Mar 22 02:56 PM Paul H. M. wrote:
> - Microsoft owns Facebook, which is quickly becoming the number one
> social networking site. They could use this as leverage to launch
> a competitive search portal.

As long as Microsoft can not produce a competitive search technology it does not matter...

> - Google produces nothing that could not be easily copied. Unlike
> Intel or Apple (even if you copied them, building enough factories
> and delivery channels to compete with them would be very challenging),
> they don't have much barrier to entry for competing products. <br/>
>
> Almost any coder could build a search engine with some type of ad
> technology. All they need is a popular portal, like Facebook, to
> point people to a possibly newer and better search engine.

You have no idea what you are talking about. If any coder could than the amount of search engines out there fighting off googles supremacy would be humongous. Examples: ex-goog team Cuil.com (did not do much did they...), Ask.com which dropped Teoma for Google... etc.

Mar 23 05:23 AM

[Glen Bradford:]

I agree. Obviously.

www.stockpickr.com/pro.../

Mar 23 06:50 AM

[j_remington:]

The author does not own GOOG.

Cash accounts for 15% of market cap.

Poor economy will weaken advertising. Microsoft's Kumo will take market share.

Mar 23 09:20 AM

[William Cowie:]

Google has not yet proven it's more than a one-hit wonder. The high growth phase, the one generating the high multiple, may be behind it. This is not saying they're a mediocre company, it's only saying that it may be well priced at this point. The $750 price baked in an expectation of growth that is not being realized, hence the fizzle. MSFT and Wal-Mart went through that, too - all high growth stocks go through that when the growth rate comes back down to earth.

Here's proof of Google's search-centricity: some are talking up Google Apps as the next great thing. However, Google (supposed masters of advertising) haven't even advertised it. Neither is any allusion to Google Apps to be found on their website, at least not easily. This tells us they're not capable of extracting value from any business but search. They do that well, no question. The issue is: do you put a higher market cap on such a one-horse show?

Mar 23 01:46 PM

[Michael Comeau:]

The stock is cheap and they have tones of cash - but that's true of the vast majority of large-cap tech names out there right now. GOOG needs a strong economy, for sentiment if nothing else.

Mar 23 01:50 PM

[Domenico:]

Is it down or is it cheap? I want to jump in but I'm having a hard time wrapping my head around this question -- where will Google be in 20 years?

What differences do you see about Google today versus Yahoo ten years ago? Or could we have read this same article in 2000, substituting "Yahoo" for "Google"?

Mar 23 09:10 PM

[Just an inv...:]

But if you look at it technically with the charts, it might not be the right time to enter now..

Mar 24 12:06 AM