Google (GOOG) acquired two companies to substantially improve its services and acquire additional developers in its social-media team in the past week. Meebo, a social-media platform connecting users through the Internet, was bought for an undisclosed amount last Monday, June 4. This move is seen to boost Google's social services, such as Google Chat and its social network Google+. On Tuesday, June 5, Google bought Quickoffice, an office productivity solutions company, to increase the functionality and compatibility of Google Apps like Gmail, Google Docs, Calendar and more.
Meebo started out as a multi-platform chat client which supported Yahoo!'s (YHOO) Yahoo! Messenger, Microsoft's (MSFT) Windows Live Messenger, AOL's (AOL) AIM, Facebook's (FB) Facebook Chat and Google Talk among others. The company later developed a menu bar that provided a platform that let consumers share pages on social networking sites that allow publishers and advertisers to promote products in an interactive manner.
I expect Google to assimilate Meebo's services into its own social offerings and use available data regarding Meebo's user base to improve its ad targeting using social indicators. Targeted advertisements are expected to be the forefront in the next few years where Google intends to gain access. Google's announcement of shutting down all, but the menu bar of Meebo yesterday, shows the intention of the company to integrate the acquired staff in its Google+ social network. I believe this move is targeted to discontinue the ability of Meebo to integrate usage and sharing in different social networking sites like Facebook and Twitter, which is competing against Google's social networking page Google+. Google's shares ended 54 cents higher at the end of the day from $578.
Quickoffice, on the other hand, is a maker of mobile productivity software applications that are estimated to be installed in more than 300 million devices. The application's top feature is its ability to open and create documents in almost any kind of format, making the application crucial in making devices and computers accessible to Google's cloud services (Google Drive). This technology has the potential to be exceptionally useful for Google's applications like Google Docs, so users can create documents in any format, on different devices, that can be opened on mobile and desktop computers of any kind.
I believe the acquisition of Quickoffice puts Google in a leading position to create enhanced mobile applications and software, particularly for enterprise users that requires professional features like encryption and editing. Making Google not only open, but compatible with almost any device, will be the key to making Google a more business-friendly company.
Google has spent more than $16 billion buying 140 companies since the end of 2009. This includes a $12.5 billion acquisition of mobile phone maker Motorola Mobility (MMI) in late May.
Valuation
Google is an American corporation that provides Internet related products and services, including Internet search engines, cloud computing, and other applications. It is also present in the mobile market. Advertising revenues from Google AdWords generate almost all of the company's profits.
The group has a market capitalization of about $189 billion and an enterprise value of nearly $150 billion. The group made $37.9 billion in 2011, an almost 30% year-on-year increase. In the first quarter of 2012, Google made $10.6 billion a 23% year-on-year increase. It has about 322 million shares outstanding as of the end of the first quarter 2012.
Mobile Ambitions
Google's recent acquisition shows its intention to become a leader in the mobile market. It is currently leading the industry through its open-source Android operating system, and with its acquisition of Motorola, I foresee Google with a very bright future ahead, with projected 2012 revenue of more than $40 billion, around 5-10% year-on-year growth. Currently, Google's Android operating system has more than 60% share of smartphone users, followed by Apples's (AAPL) iOS at around 20%, then Research In Motion's (RIMM) Blackberry at 6% and Microsoft Windows' at 5% with the rest as other operating system such as Nokia's (NOK) Symbian.
At its recent price of about $580, Google has a higher price to earnings ratio of about 17.59 compared to its biggest mobile operating system competitor Apple at 14.14, which coincidentally has the same price of $580 at the moment. Although the earnings per share ratio of Apple (41.04) are higher than Google (33.00) respectively, I believe that Google's position in the mobile market will still grow, as it has just started its business in the mobile device market.
Google's acquisition of Motorola will be a new revenue generating segment of the group - which is expected to increase its revenue. I expect the new range of Motorola phones to be more efficient and compatible to Google's Android operating system. Google's acquisition of Quickoffice will also give Google an advantage in creating business specific mobile applications and software. This will be a tool to encroach the higher tiered business users to Google, including its cloud services.
The Bottom Line
Telecommunication operators worldwide are quickly upgrading systems to keep up with the market's growing interest in smartphone and internet usage. 2G mobile systems are becoming obsolete with the replacement of 3G and 4G services, which focuses on the use of smartphones to access the Internet faster and better. Google is banking in the unrelenting thirst of consumers for faster and better mobile Internet.
I expect Google's Android system to maintain its top position in the near future. Google's acquisition of Motorola is projected to create boundless opportunity for the group to re-create itself in the mobile market, creating more value in its portfolio. The bottom line is that I would advise buying Google now, as there is a large growth opportunity for the company to exploit in the near future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
