Google reported numbers post the market last evening, these were for the full year and fourth quarter. Cash on hand, and this always amazes me, is 58.72 billion Dollars. As a percentage of their market cap it is around 15 percent. Nowhere near as high as the hardware manufacturers, like Apple and Cisco and the like, but not too dissimilar to Facebook, as you will recall yesterday. Whilst you could classify Google as a software company, they posses an enormous amount of hardware and patents for hardware. When did Google ever fall over and you were not able to search the internet? Never. Or perhaps a long time ago.
Google still focus on their Ten things we know to be true. It is really an awesome bunch of principles and simple enough for many small businesses to adopt. It is true that it is best to do one thing really, really well. Except that Google have many different businesses, but only one business that makes them a lot of money. And that of course is advertising. The future of advertising changed as we know it, whilst the three brains responsible for the formation of the company (Larry Page, Sergey Brin and to a lesser extent Eric Schmidt, more guidance that formation I guess) were intent on changing the access to information.
Before we dive head first into the numbers, Wiki has an astonishing fact about Google:
"Early in 1999, while graduate students, Brin and Page decided that the search engine they had developed was taking up too much time and distracting their academic pursuits. They went to Excite CEO George Bell and offered to sell it to him for $1 million. He rejected the offer and later criticized Vinod Khosla, one of Excite's venture capitalists, after he negotiated Brin and Page down to $750,000."
Ha-ha!!! I am not sure that Excite would have turned the same company into the success that it is today, but still, an interesting little factoid about the company. The company of course next to their main business has many irons on the fire of innovation, the much hyped Google Glass product, with quirky uses and other useful applications is not yet mainstream. The driverless car. Google wallet. The Nexus 7 tablet. Their Google fiber project of high speed broadband. The translate application that threatens to render language schools irrelevant. Recently the company bought Next, remember the piece from Byron a couple of weeks back? ->
Google makes a big (little) acquisition.
Google revenues for their entire business, which included the loss making Motorola Mobile segment, grew 19 percent year on year to 59.825 billion Dollars. Net income grew 20 percent to 12.920 billion Dollars. On a share basis, basic EPS registered 38.82 Dollars for the year. Dividends, well, you know well that they do not pay any at all. Google, at a share price indicated at 1182 at the open (that would be a record high) is rated at 30 times earnings. Well, I suppose that may be on the expensive side, but the business is growing at 20 percent per annum. The trick is being able to attract more people from the traditional advertising (let us call it old) platforms to the new ones, the online ones.
Television still attracts an enormous amount of advertising spend. But that experience is changing already. Think of here locally where you can choose to watch your programs when you want to. Without the adverts, you get to watch your favourite program without the interruptions, the only "bad" thing is that you do not get to watch it in the same time slot. The internet is going in the opposite direction however, more and more people are advertising online.
The company has no debt. A big cash pile and the ability to make smaller acquisitions. They continue to keep margins at the same sort of levels whilst growing revenues, doubling roughly every 40 months. You are paying up a lot when you buy this business, but the company is a quality one. No. They are almost like the General Electric of last century, transformative businesses letting their customers determine the future direction. More than quality, iconic really.
Paul made an interesting point though, you must have read many articles of how Apple is finished or Facebook is finished, as absurd as it sounds. But you never read a story of how Google is going out of business, because their core product is synonymous with the internet. YouTube is an extension of that too. My kids for one know only Google and YouTube as a way to lookup "stuff". It is their library.
And until that changes, it will very much stay the same. It will continue to grow and with very little competition of size and scale, the company dominates its core product. You do not say Bing it or Yahoo! it. At least not here.
The leadership issues are not cause for concern, those three (Page, Brin and Schmidt) committed to the business until 2024. Their vision still remains and the company has certainly attracted serious talent, who are in a sense given free reign to innovate and operate. This is a growth company printing growth in revenues, but has a multiple to boot. If you are patient with price action, wait for them to settle post this flurry over the next few days and then buy. And then own it. For a long, long time.