With sterling strengthening against the dollar and various industry reports re. Android v. Iphone (mercurynews.com: Apple and Google have turned smartphone market on its head), I find myself once again considering Google as an investment. The basic idea being to cover "arguably" both bases in the smartphone / tablet market as well as buying a "handy little search engine" and advertising company at the same time!
Google has recently reported its fourth quarter operating performance (investor.google.com: Google Announces Fourth Quarter and Fiscal Year 2010 Results...) which highlighted:
- fourth quarter revenues increasing to $8.44bn (up 26% year on year).
- an operating profit of $2.98bn (35% margins), for the final quarter
- net income of $2.54bn for the final quarter
- a net increase in cash of $3.4bn for the year as a whole resulting in
- a cash balance of $13.6bn as at 31 Dec 2010.
Big numbers which leads to the company being rated at a forecast P/E of 20.6 on this last year dropping to 17.7 and 15.3 for the following years.
This prices in an estimated 16% growth for the two subsequent years which isn't much when compared to historical numbers. But, having said that this last year was forecast (eventually) at 44% earnings growth which raises the question "how much of that growth was priced in at the beginning of the year and is the company still capable of huge suprises on the upside going forward?"
The question of growth is an important one at this stage as the company does not currently pay a dividend. This is why the cash pile continues to grow and theoretically at least, is because the company's management still have good reason to think that it can be better invested to the benefit of the company and its shareholders.
Well, that seems likely to come from its growing presence in the Tablet and Smartphone markets with its Android operating system.
But, the big question is how does Google make money on Android when it effectively supplies the operating system for free. Well, apparently, the company aims to increase the number of users of its systems and then makes its revenues from the apps being purchased as it appears that all App creators must be licensed with Google in order to supply them (pocketnow.com: How Does Google Make Money with Android?).
This contrasts with Apple who provide their own handsets in addition to the apps licensing etc. As a result Apple pulled in 43% of the global handset industry's profits, with only 4% of handset sales.
Can't just see how much Google pulls in from Android though, there is obviously some kind of exponential income linked to buying the phone, then buying the apps, using Chrome, Google search and Gmail, which then exposes you fully to the company's advertising processes from which it makes money!
Much like Apple there is a "lifestyle" being bought into with Google.
Again it is another company with pots of cash at the forefront of technology, leading change and influencing billions of people. I would suggest that it is impossible not to use a Google service in some form if you are an internet user (unless you are based in China), this blog service for example.
Lots to consider but the main thing is I am only indirectly looking to buy into "the lifestyle" through an investment as opposed to buying the products and the emotional attachment and loyalty that goes with it.
Google @ $611.04
Sterling : Dollar @ £1 : $1.6135
mercurynews.com: Apple and Google have turned smartphone market on its head
investor.google.com: Google Announces Fourth Quarter and Fiscal Year 2010 Results...
pocketnow.com: How Does Google Make Money with Android?
No comments:
Post a Comment