Google is still full of surprises

While analysts fret it's a one-trick pony, it's still churning out ideas that could pay off long-term. And investors are going along.

By Jonathan Berr May 20, 2013 8:00AM
In less than two decades of existence, Google  (GOOG) has revolutionized the world, transforming itself from a theoretical notion of two graduate students to a verb recognized around the world. But the Mountain View, Calif., company still has plenty of tricks up is sleeve.
Last week, the company’s stock reached what financial pundits call a "psychological" milestone of $900, a fancy way of saying "get a load of this." Google's market capitalization now tops $300 billion. By comparison, General Electric (GE), which was founded in 1892, has a market value of about $242 billion.

 

However, Google is far from invincible. Wall Street has a litany of worries about the company ranging from soft advertising prices to heightened competition from Facebook (FB) and other rivals. Analysts continue to fret that Google's side projects, such as Google Glass and a subscription music service, will sap the company’s attention from its core search business.

 

The Google logo is seen on a podium and projected on a screen at Google headquarters in Mountain View, Califorina Paul Sakuma/AP Remarkably, none of these concerns are scaring investors, who have pushed up Google's share price by almost 30% this year. Facebook has barely budged, and Apple has plunged more than 18%.

 

Technically, Google is a one-trick pony, earning the vast majority of its profits from search advertising, but it's a great "trick." Analysts expect Google to generate $59.4 billion revenue this year. With numbers like that, Google can afford to send a man to the moon. These estimates may prove to be conservative as Google begins to profit from its Android operating system, which runs 75% of the world's smartphones. 


What's better for investors is that even at its lofty price, Google is a cheap stock. Reuters pegs its price-to-earnings ratio at 26.91, which is under its five-year high. Compared with Facebook, which sports a multiple topping 2,000, the shares are a bargain.

 

The stock is trading near its 52-week price target of $904.24, so it may be wise to wait for a pullback before buying the shares. In 2006, an analyst made headlines when he speculated that was possible for the search giant to reach a $2,000 stock price. That notion certainly seems less far-fetched today.


Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @Jdberr.

 

Tags: FBGEGOOG
6Comments
May 20, 2013 1:14PM
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Split the stock ad pay a nice dividend.
May 20, 2013 12:21PM
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What's even more amazing is that Google's ad revenue moat is one click deep and wide.  Apple proves gravity still works.
May 20, 2013 8:48AM
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Google has a Trailing PE of 27 and a Forward PE of  17, that hardly makes Google a Cheap Stock. Google's number one product has Declined in performance aka quality Results. Lucky for them, they have a great early position so income hasn't suffered the same decline. Google has hardly revolution the World. The only real surprise, someone hasn't come along to eat Google's cake.
May 20, 2013 12:33PM
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Its to bad that a big majority of its profit comes from ads that we pay for which
is a lofty some, but where else ya gonna go ?
What is to bad, they don't listen either......on per per click, you can have some one
look over your site and spend as much time as they would like, one charge, BUT
on the other hand, a mistaken click or someone spends zero time there and I mean
zero, you still get dinged the same amount and I have had a big increase from those
over the past few months, making me wonder, does google have the ability to have
false hits in place from all over the US and maybe the world, 
NO way to prove it either.......
May 20, 2013 12:44PM
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The working conditions for construction workers on the new GOOGLE projects are DEPLORABLE due to the sweat shop mentality of WT.
May 20, 2013 9:01AM
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Google attempted to replace normal thinking and reasoning with automation. All that accomplished was the dulling of brains globe-wide. We're in a bubble so it makes too much sense that there would be too much investment capital funding stupid. And it has.
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