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4 Reasons to Own Google (NASDAQ: GOOG)

The Bullish Case for Google

Written by Brian Hicks
Posted July 6, 2010

Here are four reasons you should own Google (NASDAQ: GOOG).

#1) They're a Cash Machine

In Q1 2010, Google pulled in $1.9b net income (after expenses and taxes).

And they're currently sitting on a war chest of $26 billion ($83/share) with zero debt to worry about.

Having that much cash sitting around might seem like a waste of capital, but GOOG has been using it to quietly gobble up smaller tech firms...

Companies like Admob, the leader in mobile advertising. Google recently acquired them for $700m.

Mobile advertising is still in its infancy, and I think this is one of those acquisitions that might seem expensive today, but will pay off many times over in the long run.

To get an idea of cash flow, if Google wanted to pay a dividend, they could support a 3%-4% yield and still grow revenue at ~20% year over year. It's a cash machine with solid growth.

#2) Search: Best of Breed

Google is light-years ahead of the competition when it comes to search technology. And search is what brings in the money (for now).

As an example, let's look at what Yahoo! gives us if we search for 8 million dollars in euros.

yahoo-search-quality

Yahoo gives us an ad for converting euros into dollars, then the first real result is Wikipedia's page on millionaires.Not exactly what I was looking for.

Let's see how Google does:

google-search-quality


Exactly what I was looking for. That's just one example of how far ahead of the competition Google is. If you're not convinced, do some comparison searches and you'll see what I mean.

#3) Android & Mobile

Google's mobile phone operating system, Android, has seen incredible growth since it launched in 2007. It has already snatched up 9% of the smartphone market, and is growing at the fastest pace among all OSs.

droid-xMotorola's (NYSE: MOT) highly anticipated "Droid X" is set for release later this month, and it's powered by Google software. Some people are already calling it an iPhone killer, but that's a bit much to be honest. I'll go with "legit iPhone competitor", which is a big statement in and of itself.

The Droid X will sport a 4.3" screen and an 8 megapixel camera, fully support Flash 10.1, and be usable by left-handed people (unlike the iPhone 4). It has 8gb of internal memory, plus you can add up to 16gb via flash memory cards.

Google gets revenue from multiple aspects of mobile.

First, their partners who manufacture the phones pay for full access to Android software development tools; they also pay for access to Google Maps, Youtube, Gmail, and other tools.

Google also gets the lion's share of search revenue, and like Apple, gets a percentage of sales from their App store.

#4) Docs & Apps

Google's suite of productivity tools plus Gmail is catching up to Microsoft. Google Docs — which allows users to upload, store, and edit documents online — is gaining market share rapidly.

Premium versions are being sold to businesses and large organizations, and the costs are far lower than using traditional Microsoft software. This part of Google's business should see strong growth over the coming years.

Those are four big reasons I like Google here.

The stock has had a nice pullback lately, and I think we're currently at a good entry point.

GOOG is a stock I like to own in my IRA... For me it's a long-term investment, not a quick trade.

Key Stats:

  • Market Cap: $142b
  • Trailing P/E: 20
  • Forward P/E (est): 14
  • Cash: $26.5b
  • Revenue growth (YoY): 22%
  • Earnings growth (YoY): 43%

A pristine balance sheet, impressive growth, great technology, and a reasonable valuation.

Not much more you can ask for in a big tech stock.

Disclosure: Long GOOG

Until next time,

Adam Sharp
Analyst, Wealth Daily
Disclosure: Long GOOG shares

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