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A Look At Google, Through The Lens Of A Microcap Investor

|About: Alphabet Inc. (GOOGL), Includes: APPL, GOOG
Summary

Google may be considered one of the best companies in the world.

We all know what Google does, but there are a few key things I bet you didn't know it could do.

Yes, Google is a one trick pony. However they are working on a handful of unique research projects that could diversify their business model.

What's the future of Google? Skynet, World Domination, Nationalization, or just a slow stalwart?

Microcap investors should study companies like Google, to become better microcap investors.

Alphabet Inc. (NASDAQ:GOOGL) (NASDAQ:GOOG) or more informally known as Google is now the biggest, most powerful company in today's market, on a market cap basis. As of this writing, Google is sitting at a 537.05B market cap.

So why would I, a guy who focuses the majority of his time studying microcap stocks, be looking at Google? In short, I feel like microcap investors can learn a lot by studying how Google went from a Stanford Dorm room, to garage and finally to becoming the biggest company in the world.

My goal of this article is not to do the typical run of the numbers, straight valuation report on Google. I am sure it has been done plenty of times. Not only do I think there is an array or valuation reports on Google already out there, but I don't want to bore you, and more importantly, I would like to make this a fun read.

Overall, I would like to provide you, the reader, with a unique article on Google, hopefully, with information shed that you did not know before.

Things You Didn't Know Google Could Do

The library of Alexandria was the first time humanity attempted to bring the sum total of human knowledge together in one place at one time. Our last attempt? Google. - Brewster Kahle

Before reading this article on Google, I suggest you head to Amazon and pick up "The Search".

Source: Amazon

The book is a little dated, being published in 2005, yet it is wonderfully written and shows how Google became so successful. It is a pretty quick and easy read, being a short 301 pages. Yet, Battelle can write much better than I can. Really, go to Amazon and pick it up, or at least put it on your too read list.

So we all know, at least I hope we all know what Google is capable of. In all reality, you can kind of compare Google to a God. I mean have you ever been able to ask any question you wanted and have it answered in minutes…point made, Google is a type of God (in a vague way).

Besides the amazing ability to search for virtually anything (I don't know how people in the old days got through school without Google), there are a few other unique features Google can do.

Google Ngram Viewer

The Ngram Viewer or Google Books is an online tool that can chart the popularity of words from the 1500s until the present day.

Source: Ngram Viewer

It is interesting to see how investing and dividends are so positively correlate now. Also interesting to see how microcaps have never been popular and still are not gaining traction (a good sign for the microcap guys out there exploiting those inefficiencies). Here's an idea for the entrepreneur types, find the most popular string of words and somehow profit from them (make sure you give me some royalties though for giving you the base to a great idea).

Google Sky

One day when I get bored of high finance, I plan on dedicating a good portion of my life to studying the galaxy and astronomy.

Source: Google Sky

A good starting point for someone interested in looking in deep space is Google Sky. With the use of the Hubble Telescope and NASA Satellites, Google Sky lets the user delve deep into space and explore constellations millions of light years away. Maybe you can be the first being to discover life in space…

Google Earth and Flying

Google Earth lets you explore our planet and go anywhere using satellite imagery and Google Cars. It's a wonderful tool that can be used for a multiple of things. Check out this video to see some of the weirdest and creepiest things found on Google Earth.

Source: Diply

Instead of wandering around Google Earth like a normal person, Google designed a mod that allows you to fly around the world. Maybe you can find the next creepy image captured by Google Earth in your jet.

There is a significant amount of tools that Google has created that I could continue to write about such as building Legos, exploring Middle Earth, going back in time, tilting the screen, etc. However, writing about all of those tools and features would be mundane and force me to title my article "10 Things You Didn't Know Google Could Do". This is Seeking Alpha and not the Huffington Post.

What you should realize though is that Google may be one of the smartest machines on the planet at this time. They have access to almost all written information, websites and statistics about what people search for. Google is so unique and grows more intelligent every day, that Google may be the first machine to pass the Turing Test.

Source: Turing Test

What is Google Working On?

In reality, Google is a one trick pony (89% of 2014 revenues generated by advertising). However, they are a one trick pony that is very talented. Interestingly though, Google spends ~15% of revenues on R&D with a goal of continuing to make the world a better place.

This section of my article will be dedicated to what Google is developing today.

Project Loon

Source: Project Loon

Project Loon is simply Google's attempt at providing internet access to everyone in the world via balloons. Watch this intro video for a simple explanation. 2/3rds or the world population does not have a reliable source of internet access (a surprise to me). Google wants to change that by throwing balloons up in the air and giving access to even the most rural places.

This project started in 2013 in New Zealand. Thus far, the pilot tests are still ongoing yet are continuously being tested in New Zealand, California's Central Valley and Northeast Brazil. It may have a long way to go and it also may not be fruitful. However, if Google is successful in this project, think of how internet access to the whole world would drive the company's topline.

Project Wing

Source: Redmond Pie

Here is a great video introducing Project Wing. Googles plan with Project Wing is to someday in the future, deliver products to consumers via drone. Kind of interesting given the fact that Google doesn't really have products it can deliver to customers. Although if their overall goal is to change the world, this would be a great innovation if successful. I am sure we are still a long way from having groceries delivered. But, when that day comes, you know I will utilize that service (the opportunity cost of shopping is too high).

Project Makani- The Energy Kites

Source: Tree Hugger

Here you go, yet another intro video to watch. Project Makani is a clean energy project, with long-term goals of providing energy worldwide via energy kites. Basically Project Makani is a wind turbine up in the sky. Wind power is a decent source of renewable energy. With Makani, Google plans on accessing the wind higher up in the sky, where wind is stronger and steadier. This is still an ongoing project that may take several years to play out.

Source: Arstechnica

I could continue to list every known project that Google is working on, yet that could get boring very quick. If you want to read more into what Google is building, I suggest you visit Arstechnica for they continuously track what Google is up too.

For the investors who just seen Google as a one trick pony, I hope this section of my article goes to show that Google is constantly trying to innovate in unique and experimental ways. With the FCF generating ability that Google has, I would not be surprised to see Google invent the next Google (a technology that will change the world). Finally, with their continuous R&D efforts, investors should not be surprised to see future spin-offs of successful ideas in the future.

Who Is Google?

On the left you got Larry Page and on the right is Sergey Brin, two Stanford graduate drop outs who ended up creating the biggest company in the world from their dorm room to a garage. Seems like dropping out of college and starting a successful technology company are common correlations nowadays.

But it's not just Page and Brin who run the show at Google. In fact, as of the last annual report, there were 53,600 full time employees working for Google. 20,832 of these employees were in R&D, 17,621 in Sales and Marketing, 7,501 in G&A functions and 7,637 in operations.

For employee life, Google has one of the highest Glassdoor ratings I have ever seen…

Source: Glassdoor

In fact, Google has ranked the best places to work for the past six consecutive years…

Source: Fortune

I guess when you give employees unlimited sick leave, an ability to further your education for five years with $150,000 in reimbursements and a significant amount of other perks such as free oil changes, free breakfast-dinner and washers and dryers, that can make employees happy. Investors should realize that the future of Google strives on the talent of its employees. The more talent it can retain, the better their future may look.

Looking Into the Future

I would like to speculate on a few possibilities of where I see Google in the future. Some of these ideas may be farfetched and others may be more realistic. I will let you decide what to believe.

Speculation Number One- Governmental Forced Breakup

Google could end up one day becoming so big that the Government forces the company to break up into smaller businesses. With the way our political system is headed (swinging towards socialism), I believe that this is a very likely possibility.

An example of a huge company getting forced to break up in the past is Standard Oil. Could Google become so big and powerful that the Government forces a breakup of Google into smaller units, mimicking the past of Standard Oil? I wouldn't bet against it.

Speculation Number Two- Nationalization

Google controls the 'data base of intentions'. The data base of intentions is every search ever made by man, which is an every growing entity. This is a very powerful tool which, in the wrong hands, could be detrimental. Because of the common belief that the government is here to protect us, the nationalization of Google, could happen to keep this information secure.

Speculation Number Three- Skynet

Source: Skynet Is Watching

After passing the Turing Test, Google may become so intelligent that it decides to take over the world. I mean you can already voice command Google Now, it's only a matter of time before Google starts giving you orders.

Speculation Number Four- The One Trillion Dollar Company

Google has a fair shot at being the first one trillion dollar company. Although, Apple (OTC:APPL) may beat it to the punch. But what if Apple and Google merged? I don't know how legal that would be due to our over controlling government but that's quite the speculation as well. However, merger or not, I am fairly certain that Google or Apple may be one trillion dollar companies in the med-term.

Speculation Number Five- Slow Growth Stalwart

Currently Google is a high flying Wall Street loving stock. In fact, the company is priced like it will continue growing at high double digit returns going forward. However, the bigger a company gets, the harder it is for that company to continue growing at the same rate in which it did in the past. Thus the bigger they get, the slower they grow. If Google starts missing analyst expectations, the valuation may come down, mimicking a more slow growth stalwart. Maybe in the future they may instate a dividend and the company potentially makes it on the dividend aristocrat list.

A Lesson for Microcap Investors

As a microcap investor, I am always on the lookout to gain a better edge in the world of microcaps. Almost every company starts off as a microcap. If you can find the next Google, while it's still in the garage stage of its life, well your career as a microcap investor may be made.

A good way of finding the next Google is by continuously studying the microcap market. However, another great way of finding the next Google is by studying how companies like Google became what they are. In fact, I believe that if you want to be a successful microcap investor, it is imminent that you study the most successful companies around today, so you can find the next one of tomorrow.

Here is a quick list of things I have learned from Google that should be looked for in a microcap…

  1. Management with a drive: Investors should look for a management team that has a drive that keeps them going. The drive should not be a monetary drive, but a drive for success, a drive for getting their product or idea known.
  2. The Toothbrush Test: If a product can be used by hundreds of millions of individuals, every day, twice, it passes the toothbrush test. If you can find a microcap company that passes the toothbrush test, you may be on to something.
  3. The retention of employees: Employees are a valuable asset. Finding a company in which the employees wake up every day motivated to go to work is a valuable sign. Finding employees who love their job in microcap stocks may be challenging and may require company visits, however, it may be well worth the extra effort.
  4. A product that changes the world: Look for companies that have a product that can make a difference in the world. If a product or service can significantly improve the lives of as many people as possible, a deeper look into the company who makes that product or service may be very beneficial.

These are just a few things I have learned from studying Google. What have you learned that you will incorporate in your research going forward?

Final Thoughts

Is Google the best company in the world? If there was a vote, I think they have a high chance of winning. Can Google continue to be the best company in the world? If history repeats itself, or even rhymes, the answer is no. Will Google continue to change the world? If I was a betting man, I would bet yes.

I am predicting that Google will continue to pump out decent FCF from its one trick pony business. With the FCF generated, they will most likely continue funding unique and risky R&D projects. Most of the R&D projects may never be FCF positive and some may even eat into Google's current cash flow. However, if the company comes out with just one more project that is as life changing as Google was, well, all of that spend R&D may be worth it in the end (for the company and humanity).

As for an investment in Google, I am going to wait on the sidelines…at least for now. Currently the company is to richly priced for my blood. However, the market is an irrational being. One day the market will become bipolar and push Google down to a more reasonable valuation level. When this happens, I may take a second look. As for now, I will continue to wait.

To end, I would like to share a few articles on Google that provided me with value…

Google: The Threat Is Apps As Well As Ad Blockers

Who Might Win The Self-Driving Car Race?

Quantum Computers: The Emerging Technology That Will Revolutionize The World

Why Google Won't Acquire Mobileye

Google's Slow China Homecoming Marches On

Blab: A Threat To Twitter's Periscope, Google Should Buy It

6 Reasons To Buy Google

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.