When it comes to online advertising, no company is in a better position than Google to benefit from its leadership and competitive strength, both in desktop and mobile. Even if costs per click are falling, online advertising is a promising industry on a long term basis considering that people all over the planet are spending an increasingly bigger share of their time online. Advertising dollars need to follow consumers, and this powerful trend is benefiting Google in a big way for years to come.
Rising Expenses
Another reason for concern was the increase in expenses Google Inc (NASDAQ:GOOG) reported for the last quarter, total Non-GAAP costs and expenses represented 72% of revenues in the quarter, a considerable increase versus 66% in the second quarter of 2012.
Costs are rising across the board as Google puts long-term growth opportunities ahead of short term profit margins, which is precisely what innovative companies do. Advertising is the cash cow in the company´s business model, and Google is putting that money to work on all kinds of projects targeted both at consolidating its position in online advertising and at expanding into new business areas.
From hardware to cloud computing, going through Google Fiber and Google Apps, there many areas in which Google has been planting the seeds of growth over the last years. Not every one of these ventures will bring big financial rewards, of course, but the company has materially diversified its possibilities by becoming a relevant player on many attractive trends.
Technologies like self-driving cars and augmented reality glasses have limited commercial viability in the short term, but they show that Google is a relentless innovator with enormous disruptive potential on a long-term perspective.
Considering what the company has done with YouTube, Chrome and Android among others, Larry Page and his team deserve the benefit of the doubt when it comes to investing shareholders’ money in new products and technologies.
Bottom Line
Rising expenses and lower costs per click could generate falling margins and slower earnings growth for Google Inc (NASDAQ:GOOG) over the coming quarters. However, the company´s competitive strength in online advertising is unparalleled, and Google is aggressively investing in different projects with exciting potential for disruption over the next years. On a long-term basis, Google is stronger than ever.
The article Buying Google on Earnings Weakness originally appeared on Fool.com and is written by Andrés Cardenal.
Andrés Cardenal owns shares of Google and Apple. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Andrés is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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