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Why Google Has A Chance With Google+

|About: Alphabet Inc. (GOOG), Includes: AABA, FB

Google (NASDAQ:GOOG) has updated its Google+ app for Android with improvements in photo, location, and streaming. The updated product enables users to experience automatic photo enhancements, better photo edits, and easy functionality that the desktop version has. In this article, I want to explain how increase in consumer purchases will enable Google to boost its revenues with the improved product. This factor will help Google to improve its revenues by 5%.

How will Google's price multiples improve? Users of social media increasingly depend on virtual social networks for transactions. This trend is driving online purchases. For instance, Euromonitor International, a research firm, predicts that global internet retailing value will grow by 15.3% in 2013 to $601 billion. Aware of this development, companies increase their online advertising spend level to benefit from the trend on social media platforms. Google+ will benefit from this development through the online advert spend of companies. This will boost Google's revenues and improve the price multiples of the company.


Google's sales growth is bound to occur. Google+ and other online platforms have already improved the company's advertising revenue in comparison to the year-ago total. Google's advertising revenue in the first quarter was $12.95 billion, a 22% increase over first quarter 2012 revenue of $10.65 billion. The online advertising revenue represented 93% of the company's consolidated revenue.

"We had a strong start to 2013, with $14.0 billion in revenue, up 31% year-on-year," said Larry Page, CEO of Google.

In the fourth quarter, Google's advertising revenue was $12.91 billion, a 22% increase over fourth quarter 2011 revenues of $10.58 billion. This figure represented 89% of Google's consolidated revenues.

"We ended 2012 with a strong quarter," said Page. "Revenues were up 36% year-on-year, and 8% quarter on quarter. And we hit $50 million in revenues for the first time last year - not a bad achievement in just a decade and a half. In today's multi-screen world, we face tremendous opportunities as a technology company focused on user benefit. It's an incredibly exciting time to at Google."

Google And Social Media

Google has initiated social media projects in the past. The company developed Google Buzz as a social networking platform to be integrated into its e-mail program, G-mail. Google also developed Google Wave as a web-based computing platform to merge e-mail and social networking.

However, Google+ has become compulsive and influential. The updated version will enable users to easily and comfortably store their photo as they snap them. The product now has an auto backup and allows users ability to enhance their photos. It turns the Google phenomenon into something similar to Wikipedia.

Google needed to update Google+ to drive online consumer purchases and make businesses increase their advertising spend level. Fortunately, Google+ has attracted a lot of users and is the number two social media network. Google+ is important as Google aims to stay ahead of its rivals.

When we take a look at Google's financial reports, we notice that the advertising revenues showed year-on-year improvement. It is clear that Google has been improved by products such as Google+. So it can be said that the solution is making progress.

With a price to sales ratio of 5.63, Google is trading competitively, especially given its impressive gross margin of 57.45%. The Google+ update will increase the company's advertising revenue, improve its EPS of 33.42, and further grow its net income of $3.35 billion. Investors will enjoy benefits from robust earnings that create a new standard for growth.


With an EPS of 33.42, compared with 0.05 for Facebook (NASDAQ:FB) and 3.45 for Yahoo (YHOO), price to sales of 5.63, compared with 11.35 for Facebook and 5.87 for Yahoo, Google is doing better than its rivals. Recently, Facebook enlisted Android to bring users' news feeds directly into their screen. Google's update negates the effect of any improvement to Facebook. Yahoo wants to buy Tumblr for $1.1 billion for a much-needed platform in social media. The Google+ update enables Google to have the platform to face the Yahoo challenge.


Based on the growth of Google's advertising revenue and the prospects in the social media space, we can say the Google+ update will improve the fundamentals of Google. Looking at the price multiples in relation to Yahoo and Facebook, we can say Google is a buy for now.

Disclosure: I 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.