Google (NASDAQ:GOOG) will be the world's most valuable company, by a fairly wide margin, with a market cap of $5.2 trillion on Halloween, 2025.
I'll start with what we currently know about Google. There are many more parts to Google than discussed here, but this article is meant as more of a general guideline than an in depth business analysis. I'm painting with a broad brush.
Online Properties including Search, Google+, Gdrive, Youtube, and many, many more
The internet is a great business. Never before in history has the world seen such scalability, low cost of production and targeted ads. It will only become more pervasive and more focused, leading to higher conversion rates and higher CPC, more clicks, more revenue.
Big concerns and questions about this business:
Search is a commodity now. According to studies, all search engines are about the same as far as quality. Google currently has the dominant market position. Will they keep it? How will they drive more traffic to their search engine? I suspect they will not only keep their market dominance, but it will grow. Brand names are hard to overcome, even if the product can be copied. Look at Coke (NYSE:KO). It's just sugar water. Look at Levi's. It's just denim.
Will the move to mobile hurt or help? I suspect break even to help. It appears that it might hurt short-term, but overall, massively help as more access means more searches means information means more clicks and more services that people are willing to pay for.
Best part about the business: It is the only business I have ever seen that is 100% price inelastic. It is impossible for a competitor to beat them for either advertiser or consumer. It is free for consumers and at minimum possible ROI for advertiser.
Estimated earnings: $75 billion per year.
Mobile and Android
Mobile operating systems might or might not be a break even business from an operating standpoint. Depends how they pursue this angle and account for the expenses and revenues. Do they monetize it through charging carriers for android? Do they place ads on a welcome screen? Do they just continue to do as they are doing? Do they even allow other companies to use their OS or only use it in Motorola products? All of this is almost impossible to predict, but also relatively irrelevant. Google at some time will optimize the profits generated from this division. The method of profitability optimization does not have to be determined until that time comes.
Estimated earnings: $25 billion per year.
Motorola and Mobile Hardware
Without question, they plan to mimic Apple's (NASDAQ:AAPL) plan of a vertically integrated company that will just make and distribute their own hardware. Will they get carrier subsidies and other goodies that Apple gets? I suspect they will, or they will build out and circumvent the providers (see Google fiber below). At some point, there may only be 2 viable mobile suppliers, Apple and Google, and 3 mobile operators, AT&T (NYSE:T), Verizon (NYSE:VZ) and Sprint (NYSE:S). It will be a fight among the providers about who gets to carry hardware. Apple changed the balance of power with the iPhone 1 deal with AT&T (see my prior article which proved to be 100% accurate). Will WIFI, or an internet based system, be good enough to replace phone and data networks? I suspect not by 2025, but before 2035, but I could be wrong on that. It's not a matter of technology, just a matter of economics and brute force at this point. I suspect by 2025, it will be good enough in most metropolitan areas to replace traditional mobile service providers.
Estimated earnings: $20 billion per year
Which leads in to:
3 plans for Fiber:
First revenue model is to replace traditional last mile providers for internet and TV, namely cable and telephone companies. Google will make money the "traditional" way of just charging for the service.
Second revenue plan is to take out cable companies for TV service. Provide service in alternate methodology such as all programming is pay per view, or buy a whole package or your TV can follow you wherever you go, etc.
Third profit center is to have enough reach and bandwidth to circumvent traditional mobile phone providers.
A potential problem with this initiative is that it is not easily distributable, like software or even small hardware products, and is very expensive to build out. Financing can be achieved the way they are doing it in Kansas by having consumers sign up prior to launch. Once critical mass is reached with customer contracts in hand, Google can go to any bank in the world and get project financing, where the recourse and debt is based solely on the project and contracts and not on Google's credit. It will not be easy, and will require an extremely large workforce, but is not impossible by any means for a company of Google's size. Given Google's size, and a successful test in Kansas City, I suspect a full USA roll-out to be complete around 2020, with Europe and Asia following with full roll-out, pending government approval, by 2030. Once complete, they will have a virtual monopoly in every area it is deployed with extremely deep moats.
Estimated 2025 Earnings: $15 billion per year.
Other Projects Including Google Glasses, and stuff we do not know about yet
Obviously, predicting profits from unknown and non-existent products is impossible, but one can surmise by the amount of money invested, their ROI history and calculate profits backwards.
Estimate $5 billion profit per year.
This will be the most profitable division of the company, by far. In my opinion, the most profitable part of any company, anywhere in the world, by the time it is at its full capacity.
It is no longer a question of whether we will have autonomous cars, it's a question of when and how much will they cost? Since we know it can be done, it will be done. Compared to other innovations that we now take for granted, such as a light bulb, a self-driving car is not even a technological miracle. It's a slight advancement in car safety.
Once this business is established, it will be almost impossible for anybody to compete with the leader in this industry for the better part of 100 years, due to patents, first mover advantage, and overall quality of product. The latest estimates I have heard from Google are that it will cost the consumer around $3000 and be available in about 5 years. Estimated 2025 profits: $120 billion.
Total Profits in 2025
- $260 Billion
- PE Multiple: 20
- Market Cap: $5.2 Trillion
There are other candidates for MVC (Most Valuable Company) in 2025. It may just be a roll up of various companies or a quasi-governmental spinoff, but I don't count those as an option in this discussion. They are not in the spirit of my prediction and analysis. Apple, as a matter of fact, only needs a 13% compounded annual rate of return to surpass $2.5 billion in 13 years. Exxon Mobil (NYSE:XOM) may be in the running if oil prices zoom up. I have my money on Google.
Disclosure: I am long GOOG, AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.