A lot has been said about Google's (GOOG) inability to find a business outside of search that it can effectively monetize and that Google is a now a value stock. The latter couldn't be further from the truth in my view. How could a company, whose revenues (according to consensus) will grow 21% in 2010 and 22% in 2011 and whose profits will grow similarly, with both years likely beatable, be considered a value stock? We need a séance to get Graham and Dodd back to discuss the topic. But more on that at a later date. (See my previous write-up about Google hitting a wall).
I believe Google is making headway with display and video advertising and TV, and has, I believe, true potential for significant growth. However, when I think about Google's product launches and acquisitions, I think reinforcement to the core business to drive incremental growth, rather than finding a business outside of search. I thought that about Andriod and Google's push to get ahead of mobile search advertising, which reinforces the core search business. Make no mistake, Google is search and will always be search. And search, like e-Commerce, is only 20% to 25% into its growth curve. Therefore, Google, like Amazon (AMZN) in e-Commerce, has significant runway to continue to pursue its core business. Think about it. If search lacked growth, as several articles in The Wall Street Journal have alluded to, why would Microsoft (MSFT) spend billions and lose billions to enter the market?
To understand my thinking better I took a look at Google's products and services and sorted them into clear winners, potential for winning and losing, and the losers. What I found was that the clear winners all serve to boost Google’s core, immensely profitable and strong cash flow generating business, while the losers were just sunk costs with hardly a dent to shareholder value. In fact, I believe that Google actually gained knowledge from the losing ventures that they could use to enhance the current business and pursue others.
So to Google's managers and engineers I say keep innovating in search, keep focusing on what you do best, and shareholders will come back.
AdSense - A $16bn business in 2009
AdWords - A $7bn business in 2009
Search Appliance - About $300mn. Not bad
DoubleClick - A $1bn business. Not bad
Android Operating software - I love my Android based phone
Gmail - Don't know of anyone without a Gmail account
Google Finance - Other than Yahoo! Finance's chat boards I switched almost entirely to Google. I do like Yahoo!'s quick and easily downloadable historical quotes.
Google News -Use it daily. Love the Google alerts
Blogger - Love it but could be more powerful.
Images - Good to find out what clients look like before meeting
Patent Search - Has been helpful with my stock research
Google Maps - Use it all the time
Google Calendar - Love the email and text reminders
Picasa - Should get more marketing dollars to get the word out. Great asset
Google Reader - Use it every day
Google Earth - Good product. Helpful planning vacations.
Google Base - Remember Base? Helped shaped Google as a shopping destination
Google Book Search - Not a big fan but my PhD friends have taken to it
Google's dark fiber purchases
Give me time
Chrome - Jury is out on this one. I went back to Firefox
iGoogle - I see potential
YouTube - The $1.65 acquisition has resonated with users globally but has had difficulty driving profits thus far. I see profits in 3Q10.
Google Aps/Google Docs - I see potential.
TV Ads - Maybe Google hits its non-core stride here.
Trends - Useful tool for analysts but that's about it
Wait and see but most likely a loser
Google Phones, i.e., Nexus One
Checkout - Oops. Paypal (EBAY) is way too penetrated.
Wave - Someone tell me what happened here
Best up and comer
Down for the Count - Chalk me up as Sunk Costs