The stock market is currently having one of its greatest runs ever and investors are probably looking for safe stocks that can also provide returns that will at least match what the broader market is doing. Over the past 52 weeks, the S&P Depository Receipts (SPY) has return approximately 24%.
While that is an admirable return, investors may want to consider Google (GOOG) which has performed even better. Below are 4 reasons why investors should consider investing in Google right now.
Reason #1: Fundamentals
Google released its first quarter earnings report on April 18, 2013. The earnings report sent Google shares flying above $800 per share. If we start with the balance sheet, it will become apparent that Google was making some strong improvements. The company's cash and cash equivalents came in at $50.1 billion, an increase of 4.1% from December 31, 2012. At the same time, Google was able to reduce its short-term debt and keep its long-term debt the same. The short-term debt decreased by approximately 15.7% from $2.55 billion to $1.15 billion.
If we switch gears and look at the income statement, we will again notice that Google appears to be improving. Google was able to generate $12.95 billion of normal revenue, compared to just $10.65 billion for the same quarter a year ago. That represents a 21.5% increase. The company also had another source of revenue, unlike the year ago quarter. Google was able to generate $1.02 billion through Motorola Mobile. So total revenue came in at $13.97 billion, an increase of $3.32 billion from the same quarter a year ago. Looking at the company's bottom line (which accounts for all associated costs), Google was able to generate $3.35 billion of net income, an increase of $460 million from the same quarter a year ago. All in all, this was a very nice quarter for Google.
Reason #2: Analyst Growth Expectations
In addition to analyzing the past, it's important to look at what might happen in the future. This can be done in a variety of ways but a good starting point is to look at what the analysts are expecting for the next couple of years.
For 2013, analysts are expecting earnings to come in at $45.82 and revenue to come in at $59.41 billion. The 2012 year-end numbers were $32.97 EPS and $50.2 billion in revenue. Therefore in comparison to the 2013 projections, analysts are expecting an EPS increase of 39% and a revenue increase of 18.3%.
For 2014, analysts are expecting earnings to come in at $53.16 and revenue to come in at $69.34 billion. In comparison to the 2013 projections, these numbers would represent an EPS increase of 16% and a revenue increase of 16.7%.
These growth numbers are outstanding, especially in comparison to some of Google's closest competitors. The main companies that investors tend to consider as Google's competitors would be Yahoo (YHOO), Apple (AAPL), Microsoft (MSFT) and AOL (AOL). Let's look at each company's estimated revenue growth projections for 2013 and 2014:
AOL: 2013 Growth of 2.00% and 2014 Growth of 3.20%
Apple: 2013 Growth of 9.80% and 2014 Growth of 10.40%
Microsoft: 2013 Growth of 6.90% and 2014 Growth of 7.80%
Yahoo: 2013 Growth of 1.50% and 2014 Growth of 2.80%
So clearly Google holds a huge growth advantage over its competitors. The closest competitor to Google is Apple and that's because of their participation in the smartphone market. But if we look more at the internet content providers (which is Google's bread and butter business), Google hold's a huge edge in revenue growth rates over the next 18 months.
Reason #3: Search Engine Dominance
Google has become a technological giant with an ever sprawling reach into various new projects. The company is constantly innovating in an attempt to continue discovering new ways to generate revenue. But their bread and butter business remains the search engine space. And this is a space that the company continues to dominate.
The recent search engine market share stats for March 2013 have been released. Google has maintained absolute dominance both domestically and globally. For the U.S., Google's market share was 67.1%. The next closest competitor is Microsoft's Bing, which only captured 16.9% of the search market.
Because Google currently dominates the search engine space, investors may be tempted to ask how Google can continue to outperform as other sites attempt to innovate, such as Microsoft Bing. The answer is China. As of this moment, Baidu.com (BIDU) is currently the leading Chinese search engine. If Google can a way to penetrate this growing market in the future, the impact should be seen in their revenue and earnings.
Reason #4: Catalyst with Google's Annual I/O Conference
With Google's earnings recently announced, investors may be wondering what the next catalyst might be than can send the shares soaring. Well Google's annual I/O conference begins on May 15, 2013 and this event has been to spark great enthusiasm. Last year, during this event, skydivers landed on top of the conference building sporting the Google Glass which has become one of the most coveted technology products around.
While it's probably a bit unrealistic to expect another game changer like the Google Glass at this year conference, there are some other announcements that may take place:
- Google Glass Updates and Apps: With the Explorer Edition of Google Glass just starting to get into hands of a few lucky consumers, the next logical step is to find out what sorts of apps the company is working on. It is likely that some information will be provided.
- Google has been hard at work updating its web based version of Google Maps and is likely to provide some hints on its new design at this conference.
- With social networking sites such as Facebook (FB) and Linked In (LNKD) on fire, it is likely that Google will discuss the current state of Google Plus and the future plans.
- There have been reports that Google is working on a new messaging service called Babel, that would allow users to chat with friends across various devices including Android, Chrome, iOS, and Google Plus.
- There is also the possibility of an announcement regarding a new Nexus 7. Last year, Google introduced the $199 version of the Nexus 7 tablet.
- Lastly, there is a rumor of a major enhancement to Google Play, the Android store for apps, music, and movies. Google may release a service called Google Play Games, which will attempt to compete against Apple's Game Center.
Clearly the conference has the capability of releasing a variety of new products and/or enhancements that take Google to the next level.
While the above four reasons clearly indicate the potential, there are certainly risks. The first is that Google has had some incredible stock price appreciation already during the past few months. This might mean that the stock is due for a sell off or it could mean the stock will continue to follow the trend and head higher. However, that is a timing question, rather than a fundamental one. A second risk is from competition. Google competes in ultra competitive niches such as smartphones and tablets. Google competes against Apple, Microsoft, and Amazon who have some very smart talent at the top of the company. First mover advantages are huge and while Google has always managed to stay towards the top, any slip ups could be felt in future earnings reports.
With Google having appreciated more than 36% during the past six months, investors may be concerned about how much more room it has left. I believe there is a lot of room left. The above four reasons including an attractive quarterly earnings report, extremely strong growth projections compared to that of their closest competitors, search engine dominance, and a potential catalyst at the conference, demonstrate that Google is far from finished on its incredible climb higher.