Where Does Google Make Its Money?

When you Google something you search for it on the internet. When you click on an advertising link at the top of the page the company that placed the ad pays a few cents to a few dollars. Or if you click and then go to a web site and pay for something the company pays a few dollars to many dollars. These are either pay per click or pay per action ads. If you ignore them there is no charge to the advertiser. If you act the advertiser pays for a visit to their web site or for your purchase. Google sells ads on its search engine web pages and on YouTube. That revenue went up twenty-three percent last quarter. On the other hand the cost per click, what advertisers pay, went down eight percent. When the market saw these results they pushed the stock up thirteen percent, briefly over $1000. So, we repeat the question, is Google overbought at 1000 dollars a share. Basically what does fundamental analysis say about the intrinsic value of this stock? If you own Google and only Google is it time to diversify your investment portfolio?

Google and Looking Forward

Google is responsible for android devices and there are a billion of them in use or in the works. It sells apps and content through its Google Play Store. It makes money from its Google Maps service and saw a one third up tic in foreign revenue for the quarter as well. There is certainly good reason to be positive about Google for the time being. However, just how big is the market for online ads that lead you to internet sales pages or sales videos? Think of the auto industry in which there were no cars or trucks and the industry had the potential to make and sell a car for every family in the country if not the world. Once the market was saturated it became more competitive and growth slowed. New competitors entered the arena. What will happen to Google going forward and in that light is Google overbought at 1000 dollars a share?

Share Price and Share Price Growth

What would Microsoft be selling for if it never had a stock split? After nine stock splits Microsoft has kept its stock price in an affordable range. If it had not split the stock might  be selling for over $10,000 a share! Basically a high stock price is a deterrent for the average small investor. Our take on this is that by not splitting Google reduces its stock liquidity and is discouraging small long term investors who would normally invest a little every quarter and leave their money in the stock until retirement. When there are enough of these investors in a company it tends to support the stock price because these folks tend to buy a few more shares when prices fall. Is Google overbought at 1000 dollars a share? We think it might be. So, do your own fundamental analysis and stay with Google or pick profitable investment alternatives depending on the results.

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When Do Companies File SEC Financials?

Companies typically file their quarterly financial reports with the Securities and Exchange Commission after the US markets have closed. This allows investors to digest the news before the next trading day. It helps avoid knee jerk responses based on panic when earnings of a big company fall by a fifth as in the current gigantic Google goof. However, losing a fifth of your earnings is not a technical glitch and, even if the filing had gone as scheduled, the result would likely have been an opening gap down for Google stock in response to poor earnings in the third quarter.

Why Did Google Profits Drop?

The move from desktop and lap top computers to mobile devices like Blackberries and iPhones has reduced profits for Google. Basically, mobile device ads make less money so the Google Pay Per Click business is suffering (off fifteen percent for the quarter in question). Part of this, however, is a matter of playing catch up. Programmers need to improve formatting and presentation on ads that appear on mobile devices. When that is accomplished, one can expect that Google will regain some of its lost revenue. In the meantime Google and Apple are at war over control of the mobile device world. To the extent that Apple successfully defends it patents against other device makers it may adversely affect Google which supports the Android platform. If Google loses badly in the patent wars could it be another gigantic Google goof and no longer a good stock investment?

How About Motorola Mobility?

The Google purchase of Motorola Mobility was for the Motorola treasure store of patents. However, the internet giant has had no better luck running the company than its former directors. Losses at the US cell phone maker were over $150 million in the quarter in question, much worse than expected and another aspect of the gigantic Google goof.

Buy When There Is Blood in the Streets

If you believe that the gigantic Google goof was basically human error in filing too early you may want to pick a few shares of GOOG while the price is down.  Fundamental analysis tells us that Google is a strong company with a good business plan and search market dominance. But, the world changes. The global economy is still unsteady despite an improving picture in the USA. Consumers may hold off on buying and using high end electronics affecting profits at both Google and Apple.

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