Google Becomes the Perfect Stock

By Douglas A. McIntyre Published Mar 28, 6:33AM EDT

Follow 24/7 Wall St. on Google

This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.

One the one hand, investors have complained about the complex Google stock split and its governance effect. On the other hand, Google Inc. (NASDAQ: GOOG) is one of few of stocks likely to continue to ride a rally, or survive a sharp market drop with most of its market value intact. Its businesses have started to broaden enough for Wall Street to believe it will not rely solely on search forever, while its search business becomes stronger and stronger.

Google’s primary advantage as a company is that its products have become absolutely essential in large markets. The search firm makes money on some of these, and others lack that promise. Add to this that Google’s annual revenue could reach $100 billion in a year or two, and it has $60 billion in cash and securities. In the past quarter, it had net income of $3.4 billion, up from $2.9 billion in the same period in 2012.

It is impossible to imagine that any other company can come close to catching Google’s core search position, particularly as it broadens onto smartphones and tablets. The exception to that is its weak positions in India, China and Russia. While it would improve Google’s story to be the universal search engine, it does not harm it terribly that it dominates much of the civilized world.

Android has become the de facto mobile OS. Apple Inc. (NASDAQ: AAPL) supporters would deny that. But the iPhone represents an ever smaller portion of the smartphone market. That trend does not show any evidence of reversing itself. If the iPhone 6 falters, Android’s advantage will jump ahead again.

Google still has not come up with a way to make large sums on its Maps or YouTube businesses. In a world in which streaming video use has grown, YouTube’s size gives it multiple advantages. It is by far the most visited video site in the United States. Even if Netflix Inc. (NASDAQ: NFLX) and Amazon.com Inc. (NASDAQ: AMZN) have leads in this business, YouTube has the audience, and Google has the balance sheet that gives it a shot at smothering competitors, or at least bleeding off their market shares.

The future of Google Maps continues to be a riddle. Is it just a way for Google to draw in users for its search engine? Or is it Google’s Trojan horse in the consumer cloud computing business. Google needs a way to market its capacity as the best place for people to work and play via distant servers. The audience for Maps as least draws a potential customer base of hundreds of millions.

The knock against Google’s primary search business, and therefore the trigger that could hurt its shares, is that a bad economy would either reduce the number of people who click on its ads or drive down what advertisers will pay for those clicks. It is a fair position. However, Google’s ad model has proven itself to be more efficient than any other on the Web. If there is an economic downturn, efficiency usually gains an edge.

Today, Google has the third largest market cap of any U.S.-traded public company, behind Exxon Mobil Corp. (NASDAQ: XOM) and Apple. And, most days, it gains on those two. That trend will continue.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.