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Google (NASDAQ:GOOG) is a global technology leader focused on improving the ways people connect with information. Google’s innovations in web search and advertising have made its website a top Internet property and its brand one of the most recognized in the world. Google generates revenue primarily by delivering relevant, cost-effective online advertising. Businesses use Google’s Adwords program to promote their products and services with targeted advertising. In addition, third parties that comprise the Google Network use the AdSense program to deliver relevant ads.

Strong Global Brand

The very first web page was created in 1990 and by late 1992, there were only a mere 26 websites in the world. However, just a few years later, web pages numbered in the tens of millions and searching for information became challenging. To address that challenge, Stanford University graduate students, Larry Page and Sergey Brin, starting from their dorm room built a search engine that used links to determine the importance of individual web pages. By 1998, they formalized their work and named their search engine Google, a play on the word, googol, which is the mathematical expression for a 1 followed by 100 zeroes. The name reflects the immense volume of information that exists and Google’s mission to organize the world’s information and make it universally accessible and useful.

Today, the web has grown by a factor of 10,000 as has Google’s search index. Google serves users in nearly every country and 146 languages. Google’s strong global brand is one of the most recognized in the world as the number of people who use Google’s service every day is in the hundreds of millions with billions of people now having access to the Internet via computers and mobile phones.

Search results are no longer just web pages. They include images, videos, books, maps and more. In 2006, Google acquired YouTube, which lets billions of people watch and share original videos and professional content.

With searches increasingly coming from mobile devices such as smartphones, Google developed Android, a mobile operating system that allows open interoperation across carriers and manufacturers with over 350,000 Android devices activated daily.

To enable faster searches, Google launched a new web browser called Google Chrome with 160 million users. This browser makes it easier for folks to use their favorite Google products like Google Maps, Gmail, Google Calendar, Google Docs and Google Translate, which allows users to instantly translate web pages and videos between any of 58 languages.

Outstanding Growth

Most of Google’s products and services are free for users. The majority of the company’s $29 billion in revenue last year came from advertising as Google’s proprietary technology automatically matches ads to the content of the pages on which they appear. Advertisers pay the company either when a user clicks on one of its ads or based on the number of times their ads appear on the Google Network.

Thanks to the growth of the digital economy and the shift of consumers and advertisers from offline to online, Google has generated outstanding growth. Over the last five years, both sales and net income have compounded at 29% annual growth rates. During the first quarter, Google’s revenues rose 27% to $8.6 billion demonstrating the value of search and search ads to users and advertisers as well as the strong growth potential of areas like display ads and mobile. However, earnings dipped 8% to $1.8 billion, reflecting a $500 million charge related to a potential resolution of a Department of Justice investigation. Higher operating costs also impacted earning as Google increased companywide salaries 10%.

Robust Cash Flows

Google generates robust cash flows with free cash flow topping $7 billion last year, up more than fourfold over the last five years. In addition to investing aggressively in newer businesses such as display, mobile and enterprise, Google uses cash for acquisitions to help fuel future growth. At the same time, cash keeps piling up on the balance sheet with Google boasting nearly $37 billion in cash (about $115 per share) as of 3/31/11. Backing out this massive cash stash from its market capitalization, Google is trading for less than 12 times expected 2011 EPS of about $34 per share.

Long-term investors should google Google, a HI-quality company with a strong global brand, outstanding growth and robust cash flows. Buy.

Disclosure: Hendershot Investments holds a long position in each stock presented. The content in this article should not be taken as investment advice or construed as a recommendation to buy or sell any security. Ideas expressed may not be suitable for every account, depending on an individual’s investment objective, risk-tolerance and financial situation. Information presented here was obtained from sources believed to be reliable but accuracy and completeness and opinions based on this information are not guaranteed. It should not be assumed that investments discussed will be profitable or will equal the performance of securities listed here or recommended in the past. All data, information and opinions expressed are subject to change without notice. Further information on companies mentioned is available upon request.

Source: Google: Outstanding Growth, Robust Cash Flows