Google’s (GOOG) stock has been flying high since their impressive earnings release last Thursday. That release juiced their market cap by the size of a small country and has given them some of their mojo back. Google is a growth company that was trading like a value stock. Their multiple should expand going forward, and there may be more to come. With the so-far successful release of Google+, the stock may have a lottery ticket attached to it.
Paul Allen, or Paul Allen “The Lessor” as he describes himself, has become somewhat of an unofficial Google statistician. This Paul Allen is a serial entrepreneur and founder of ancestry.com (ACOM). Last week he said Google+ had gained more than 10 million users, which was confirmed by Larry Page. On Tuesday Allen came out with a post saying Google+ may now have more than 18 million users. Google+, which made its debut on June 28, is still nominally an invitation-only service in its beta stage.
After a few social media failures, it looks like Google may have a hit. I’ve been using it for about 10 days and I see a number of ways that may prove to be very profitable to Google. If Google+ keeps the momentum up, it could significantly increase the company’s ad revenue.
After the rise and fall of Prodigy and AOL, it seemed like the portal model, where a login becomes a one-stop shop for email, web-searching, and chat, was on the way out. That began to change over the last year or two with the integration of additional features to Facebook and Google. Facebook recently completed a deal with Microsoft (MSFT) to integrate Skype. That deal will help Facebook catch up to Google in one aspect, but also highlighted the complete lack of development of the product when it was in the arms of eBay (EBAY).
From my Google portal I’ve been able to make VoIP phone calls for years with Google Voice. The chat feature has always been there, and I use the Google Calendar, Reader, Tasks, and occasionally Google Docs from my Gmail portal. This doesn’t even begin to get into YouTube and other Google properties that can be accessed from inside the Google sphere. Of course, I also have an Android smart phone. Now, with Google+ I can perform most of my social media tasks within the portal as well.
The secret to keeping you within Google is a little box in the upper right hand corner when you’re logged into a Google property. That box is the update box and, like Facebook’s updates, continually drives you back to Google+ from Gmail or other Google sites. It’s addictive and more effective than Facebook’s notification since Google has many more properties that you’re likely to keep open. So, if you’re in Google Finance, or Gmail, or iGoogle, for example, the update box will drive you to more sites.
There aren’t ads in Google+ yet, and there aren’t likely to be for some time. The future traffic to Google+ alone will drive higher ad revenue, but the Circle feature could increase ad prices exponentially. For those of you who have used ads on Facebook, you know the impressive level of detail that is available to target your ads. I ran a trial last year to increase the “Likes” on my firm’s Facebook page. I was able to focus on a specific gender, age group, location, interest, and any key terms. I’m a value investor so I was able to focus my ads to anyone who had “Warren Buffett” in their profile. Facebook is not an advertising company, but the options were specific. Imagine how much better Google will be at this.
The data mining from the profiles and updates of Google+ users will be overwhelming when implemented. Do you know how much advertisers pay for those mesothelioma ads? Imagine what they would pay to place that ad next to an update containing the word or some variation of it.
There’s much more. The Hangout function has the potential to be used as a webinar-style meeting place. Right now it’s set up where users can chat via video, audio, or by just typing. Users can also watch YouTube videos together in a Hangout. The potential for other functions is endless. As a small business owner, it’s likely that I’ll be able to walk a client through a presentation in Google Hangout, share Google Docs, and do a variety of other useful things. The enterprise possibilities are large, and the revenue potential is unknowable.
Of course, using Google+ on an Android device opens up a whole range of location-based advertising possibilities. It’s a pre-season game right now for the service.
Last Thursday Page said that the then 10 million users were sharing over one billion pages a day. Imagine the level of activity if Google+ can tap into even one third of Facebook’s 750 million users.
Usually when you talk about a stock having a lottery ticket attached to it, you’re talking about a small cap stock, not a $200 billion market cap company. However, it’s clear to me that investors are giving no credit to the potential of Google+. When analysts are focused on the next quarter rather than the next three years, we shouldn’t be surprised.
Disclosure: I am long GOOG, MSFT.