As Google Inc (NASDAQ:GOOG) shares approach the four-digit mark, it’s only reasonable for investors to wonder if the stock has gotten ahead of the fundamentals.
But that’s definitely not the case with this company. There are so many great stories in Google Inc (NASDAQ:GOOG)’s burgeoning empire that shares still have lots of room to run. Here are five reasons the stock can continue higher.
The smartphone market is saturated. Today, more than 50% of U.S. mobile subscribers already have a smartphone. To grow, companies need to target late adopters and emerging market customers who tend to be more price sensitive.
Read between the lines: lower margins and slower growth!
However, Android is the right platform for this phase in the product cycle. Google Inc (NASDAQ:GOOG) licences out the platform to hardware manufacturers for free giving Android devices a significant price advantage in the marketplace. Already, Android is the global leader with 70% of smartphone market share worldwide.
Google Inc (NASDAQ:GOOG)’s ability to generate ad revenue from mobile platforms is only just starting to gain traction. Last quarter, the company’s overall cost-per-click showed signs of stabilizing, declining only a slight 4% year-over-year.
In contrast, Apple Inc. (NASDAQ:AAPL) is not as well positioned. The top-end of the smartphone market is becoming increasingly crowded with Research In Motion Ltd (NASDAQ:BBRY), Nokia Corporation (ADR) (NYSE:NOK), and Samsung jockeying for share.
In addition the iPhone’s high price is slowing sales in emerging economies. In China, the world’s largest smartphone market, the iPhone has less than 10% of market share. Apple Inc. (NASDAQ:AAPL) could counter this problem through the release of a low-cost iPhone but only at the expense of profit margins and the brand’s prestige.
Google’s Chrome internet browser is growing quickly. This month the company reported that there’re more than 750 million active Chrome users, up from 300 million last year. The benefit for Google: Chrome could significantly reduce the amount of money Google pays third parties to drive traffic to its search engine.
Google is also using apps on Android and iOS devices to reduce the reliance on browsers like Safari and Internet Explorer. This could further reduce the company’s traffic acquisition costs.
YouTube has become the number one choice for watching video online. More than one billion people visit the site monthly making YouTube the second most visited website after Google Inc (NASDAQ:GOOG) itself. Efforts to monetize traffic have been successful with YouTube generating $1.3 billion in revenue last year.
Online video has the potential to shake up the entire television industry. According to estimates from eMarketer, online video accounted for 6.2% of total TV ad spending last year. This could grow to 11% of ad spending by 2016. YouTube is well positioned to benefit from this trend.
Last week Google announced two changes to its payment service including a streamlined checkout service and the ability to send money by email. These are big changes that show the company’s persistent effort to become the player the global eCommerce boom.
Could Google Inc (NASDAQ:GOOG) topple payment giant eBay Inc (NASDAQ:EBAY)? Possibly.
Google will be rolling out its service via Gmail and Android quickly giving the company access to over 400 million users. That’s almost four times larger than PayPal’s 120 million customers.
Google may also be able to offer the service for free, focusing instead on exploiting valuable transaction data. A price war could put a major crimp in eBay Inc (NASDAQ:EBAY)’s margins if Google Wallet catches on.
And then of course there’re Google’s long shot projects which could spell new multi-billion dollar revenue opportunities.
Fiber: The answer to the slow internet connection, Google Fiber runs at 1GB per second or roughly 100 times faster than the average U.S. internet speed. Google could see big profits as the project rolls out nationwide.
Glass: Still in its infancy, Glass has just been released to the developer community so it’s still unclear how big the marketplace could be or the technology’s potential. But this innovation puts Google Inc (NASDAQ:GOOG) at the forefront of the wearable technology trend.
Foolish bottom line
In addition, Google’s valuation isn’t extraordinarily expensive. Shares trade at 16 times forward earning. With profits growing at a mid-teen clip, the stock is valued at a reasonable 1.1 PEG ratio. This is hardly in nosebleed territory.
The article Can Google’s Run Continue? originally appeared on Fool.com and is written by Robert Baillieul.
Robert Baillieul has no position in any stocks mentioned. The Motley Fool recommends Apple, eBay, and Google. The Motley Fool owns shares of Apple, eBay, and Google. Robert 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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