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Our society has become accustomed to a world where our lives revolve around the internet, whether it be through the use of a smartphone, computer or tablet. The internet has surely come a long way, with its beginning in 1969. On October 29th, 1969, computers at Stanford and UCLA were first connected. These computers were the first hosts that would one day become the Internet. From then on, we have slowly evolved in such a manner that our world is now almost fully connected. In 2000, it was estimated by Cisco Systems (CSCO), that there were approximately 200 million devices connected by the internet. Currently, that number is to the tune of 10 billion devices that utilize the internet, and ironically we are still in the infant stages of the internet evolution.

Companies that are able to analyze our purchasing history and web history have a phenomenal advantage in capturing consumers' business. The most dominant player in this recent field has been Google (GOOG). Google has access to all of our searches, and our Google email (Gmail) accounts as well. This allows Google to maximize its advertising revenue.

Google analytics is now able to cater much more efficiently to advertising companies by linking them directly to the most appropriate users. Hence, this in turn generates more sales for its advertising clients. Google is now able to generate even more profits, as it is able to further narrow down what a consumer is most interested in buying. Simply put, Google's main objective is to pair or link the perfect consumer with the right company that is advertising on that web page. It is estimated that 1,407,724,920 people, or 21.1 percent still do not have internet access in the world. This may seem like a high number, especially for individuals in developed nations such as the United States or Europe who are used to being around frequent technology users in their daily lives. This further demonstrates the potential gains that Google has yet to prosper from.

Cisco's CEO, John Chambers believes that we are bound to experience an even further expansion in the variety and number of devices connected to the internet as he further expands globally to India. Eventually, we will live in a world that is connected completely, including all third world countries. Similarly, with the growth of cloud computing, mobile, and data analysis, the internet is poised to grow more than imaginable to the common investor.

PERIOD ENDING

12/2012

12/2011

12/2010

12/2009

Income Statement

Operating Revenue (Revenue/Sales)

50,175,000

37,905,000

29,321,000

23,650,563

Total Revenues

50,175,000

37,905,000

29,321,000

23,650,563

Cost of Sales

17,672,000

11,337,000

9,021,000

7,319,807

Cost of Sales with Depreciation

20,634,000

13,188,000

10,417,000

8,844,115

Gross Margin

32,503,000

26,568,000

20,300,000

16,330,756

Gross Operating Profit

32,503,000

26,568,000

20,300,000

16,330,756

Research & Development Expense

6,793,000

5,162,000

3,762,000

2,843,027

Selling, Gen. & Administrative Expense

9,988,000

7,313,000

4,761,000

3,651,235

Operating Income

12,760,000

11,742,000

10,381,000

8,312,186

Operating Income b/f Depreciation (EBITDA)

15,722,000

14,093,000

11,777,000

9,836,494

Depreciation

2,962,000

1,851,000

1,396,000

1,524,308

Operating Income After Depreciation

12,760,000

12,242,000

10,381,000

8,312,186

Interest Income

713,000

812,000

579,000

229,673

Other Income, Net

(3,000)

(670,000)

(164,000)

(160,670)

*All numbers in thousands

Google's P/E ratio of 25.28 is slightly above its peers' average P/E ratio of 22. However, it is warranted with its tremendous potential for complete worldwide domination. Google has had a 52 week range of $556.52 to $844.00. As the table above illustrates, Google is able to steadily increase its revenues year over year. Total revenue from 2009 to 2012 has more than doubled. Similarly, total net income has grown over 60 percent from 2009 to 2012. A further look into the income statement reveals a consistent growth in its overall fundamental business.

Potential Headwinds

Google will likely face fierce competition looking forward in the years to come. For example, Myspace had dominated the social networking industry for years until Facebook (NASDAQ:FB) came along to transform the way in which users interacted with each other. A gradual shift occurred through word of mouth, until it was the clear dominating force. Google faces similar risks, as companies that are non-existent at present could pose great threats. Innovation is always what keeps the market evolving and tosses the weak companies to the sidelines. However, Google has a tremendous first player advantage, as it has been dominating the internet since the early 2000's.

Potential threat to Google

Naver (NHN) is the most popular search engine company used in Korea. Naverr is able to produce more relevant searches than does Google. Choi Jae Hyeon, NHN's search chief stated, "We have, however, built up know how and a database by extracting knowledge from users' brains." Mr. Hyeon has been adamant about expanding and becoming world known at any cost. He has claimed that he is willing to run at a loss for years, and will market his company tremendously. Naver has expanded into the mobile market as well. NHN owns LINE and camp mobile. LINE has recently become a popular way to communicate with the usage of thousands of sticker graphics and several social games.

Google has already competed with Naver in Japan in 2000, where Google had won that battle by 2004. Naver is using online games, including everything from chess to elaborate role-playing contests. NHN is the largest game portal in Japan with 13 million subscribers. It is also popular amongst consumers in China and the United States. In China it bought half of Ourgame.com, a portal with 170 million subscribers, in 2004. Naver also set up a subsidiary in the United States to launch online games. NHN is planning to introduce community sites and search engines in those markets. Google is currently far ahead, but this smaller Korean search engine company is devoted to expansion at any cost and provides unique innovated services to its consumers.

The next time you browse the web, take a closer look at the companies advertising on your browser. You may be surprised and even "freaked" out when you see companies/products that you are actually interested in right in front of your eyes. Personally, I was never interested in previous bothersome advertisements, and wondered how many other consumers actually bought goods or services from these advertisers. It finally became apparent that there is enormous potential that companies have by advertising to the correct targeted audiences. Google is constantly using its analytics to continuously maximize its profits. As the internet inevitably expands to the entire world and becomes easily accessible, Google stands to capture even more market share. This internet giant has been dominant for a reason, and it will continue to dominate the industry for the foreseeable future as it is able to adapt to an ever evolving technology and keep pumping out huge profits.

Source: The Next Phase Of The Internet: Google's Global Domination With A Sneaky Edge