Strengths
Search Market Leader: Google Inc (NASDAQ:GOOG) is the most dominant and valuable Internet property across the globe. It is the most dominating search engine company in the world with more than 65% market share globally. Competing search firms like Microsoft and Yahoo! are not even close to Google, with Microsoft Corporation (NASDAQ:MSFT)’s Bing holding 17% market share in the U.S., according to comScore. Google is the gateway to the Internet, and as a result, the company has numerous advantages in competing with other technology rivals.
User Traffic and Brand: Owing to the massive dominance of search, Google Inc (NASDAQ:GOOG) has become a household brand name across the globe. Google established itself as one of the most powerful brands in the world, which led to adding more users, partners for content, and advertisers to its platform. As a result, Google’s search engine averages more than 1.2 billion unique searchers a month, which keeps on growing Google’s search ads business.
Display and advertising technologies: Google Inc (NASDAQ:GOOG)’s revenue sharing model with third party sites makes the partners of Google very sticky as a significant number of third-party sites, platforms, creators, etc., rely upon Google for generating a significant amount of revenue. Revenues from Network Member sites have a lower operating margin compared to Google-owned sites but the traffic, content and revenues generated require less effort from Google’s standpoint due to its technologies like AdSense. Google has strong relationships with advertisers, due to its wide offerings and high ROI that it offers marketers.
Mobile & Android: Android is the top dog in the global smartphone marketplace by a big distance at 75%, whereas Apple Inc. (NASDAQ:AAPL)’s iOS stood at 17.3%, according to IDC. Android and iOS combined held more than 92% of all smartphone shipments in 1Q13. Google Inc (NASDAQ:GOOG)’s dominance in mobile OS has led to the firm earning more than $8 billion in annualized run-rate on mobile, of which a majority are mobile ads.
YouTube: Google Inc (NASDAQ:GOOG)’s video asset is the biggest player in the online video market with a monthly user base of more than 1 billion users. YouTube is projected to earn $4.5-$5 billion in revenues annually for the company, and is expected to grow rapidly in the future.
Weaknesses:
Motorola Mobility: Google Inc (NASDAQ:GOOG)’s acquisition of Motorola hasn’t been performing very well, and is eating into the company’s earnings. In 2Q13, Motorola had an operating loss of $342 million on revenues of $998.
Declining Ad Rates: The amount of ads shown or paid clicks are grew 23% but the price paid per ad or Cost per click declined 6% in 2Q13. Google’s CPCs are declining heavily, due to the secular trend towards mobile, as ads on smaller screen mobile devices are a lot less valuable.
Dependence on Advertising: The bulk of Google Inc (NASDAQ:GOOG)’s revenues are still flowing in from advertising only. The company earned roughly 86% of its total consolidated revenues from advertising alone in 2Q13. However, it is making steady progress towards diversifying its revenue base with more revenues from hardware, Motorola, enterprise, etc.
Opportunities
Hardware and Motorola: Google Inc (NASDAQ:GOOG) has a number of hardware devices in the market, with more to come from its various partners for the Nexus products, Chromebooks etc. Google’s own hardware and other revenue items had sales of $2 billion in the first six months of 2013. Even though Google acquired Motorola mainly for the Intellectual Property, the new line of Motorola phones can grow market share under Google’s belt.
Non-search Ads: Google Inc (NASDAQ:GOOG)’s non-search ads business including display ads, YouTube and mobile can grow substantially from current levels. And going forward, this group is growing at a faster clip compared to Google’s search engine business, which has steady revenue streams.
Google Play: Google can ramp up its content sales from its Play ecosystem to support Android devices. Play can compete more broadly with iTunes running on iOS devices and also with Amazon.com, Inc. (NASDAQ:AMZN)’s media and content platform.
Cloud Computing: Google Inc (NASDAQ:GOOG) can become a bigger player in the fast growing cloud market. The company is already leveraging its massive computing infrastructure for earning revenues from developers, businesses and governments etc.
