On Monday I posted Google Q2 2013 Update: Valuing Possibly The Most Powerful Co. In The Worl [4]d?, an update on Google's valuation and target price points for my subscribers [5]. In said piece, I illuminated the massive misunderstanding of Google's business model. I consistently hear pundits bang on the table screaming, "But nearly all of Google's revenue comes from advertising!!! [6]" That's the point! Google monetizes nearly ALL of its ventures through advertising, whcih is why it can actually outgrow the pace of online advertising growth and still be the biggest player in the game. It rides the rising tide while still pumping water under its surfboard.
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Google has almost consistently outgrown the adoption rate of web advertising. What does this mean? Well, it means that although Web advertising is getting bigger and more popular as a slice of the total advertising pie, Google is getting even bigger and more dominant in the space – not less. Google is beating competition back even as the market grows!
[8]Google ad growth
How does it do this? Google management thinks BIG, very BIG! Think about it...
Android - takes over mobile computing, literally! It has passed 900 million devices activated [9], with 48 billion app downads. That's nearly a billion, a force to be reckoned with for any developer, marketer or advertiser. Just two years ago, I had to cram this concept down the throats of develoepers and advertisers - One Reason Why Software Developers & Tech Firms Should Pay Close Attention To Research Boutiques Such As BoomBustBlog [10]
Notebook computing that drives prices towards zero...
Commercial speed internet access (1 Gbit) for the price of cable TV (that's 100x the speed of cable internet access, both ways - up and downstream), meet Google Fiber [13] and understand that now 14 year olds can produce and distribute their own TV shose from their mommy's basement. Speaking of which...
YouTube- takes over visual media production and consumption, as they now have subscription video channels ala Netflix (accept iy can upload your own content) - YouTube confirms subscription model, and here are the partners ... [14]
Self driving cars - self explanatory
Google Glass - transforms personal and mobile computing
I can go on, as a matter of fact, I think I will. Google has released some blockbuster products and flops, the key is they're not afraid to experiment, and like Microsoft, they don't give up at the first sign of failure. Remember, it often takes 99 "No's" to get one "Yes". Google Wallet is one such product. It faced extreme industry pushback, primarily because it stepped on too many toes, particularly those toes that spend a lot of money on lobbying (the banking and financial services industry). Now, it looks as if management is going grass roots, bringing the world's most ubiquitous "Free" email system to the ability to send money as an attachment. That's right, GMail now allows you to send cash as a simple attachment [15]. This is much more convenient than PayPal, wiring funds, or practically anthing else I can think of.
With this many projects in the pipeline, Google's revenue and profit potential dwarfs that of Apple - the purveyor of pretty, shiny things...
Subscribers, click the following links for my updated price targets on Google (click here to subscribe [5]):
Google Q1 2013 Valuation Note - Retail
(Technology) [17]- Google Q1 2013 Valuation Note - Professional & Instititional
(Technology) [18]
The biggest risks to these price points are:
- A market that's being levitated by central bank magicians running short on magic spells...
- Regulatory pressure, which I feel is quite material and inevitable, but will not be a major factor in the near term.