Novice Investing - Searching For Profit

Date: Friday 12th 2010f March 2010 10:40:52 AM

Searching For Profit - 01/22/2010

By: Hari Wibowo

		Google Inc. 1600 Amphitheatre Parkway Mountain View, CA 94043 United States

Google Inc. (GOOG) announced its 4th quarter earning 2009 and it continued on its dominance in the search business. Revenue rose 17% year over year. Net income rose to $ 1.98 Billion. This puts it in the league of the most profitable company in the US. Meanwhile, Google hoards a cash equivalent of $ 24.5 Billion at the end of 2009. With revenue of $ 6.67 Billion during the quarter, Google spotted a net profit of 29.7%. That puts it in the league of the like of Microsoft where you make so much profit per revenue. For your information, even behemoth like General Electric has a net profit of 'merely' 17%.

Despite that, one would notice that 97% of Google's revenue still came from search related products; $ 4.42 Billion of revenue came from Google Sites while $ 2.04 Billion came from Google Network Revenues. If you add that up, it is roughly 97% of Google's total revenue.

Google has been trying to diversify its revenue away from search related products for quite some time. Looking ahead for 2010, Google had recently released its first ever Google phone dubbed Nexus One. Will this be a venue where people can make calls and browse the internet for free, while having its phone screen plastered with mobile advertising? If that is the case, then Nexus is merely a platform where Google can keep churning its search profit engine. Another attempt to drive growth is for Google's own YouTube to get into the movie rental business. That puts it into competition with online DVD rental, Netflix, ecommerce juggernaut, Amazon.com, and also Apple's iTune stores. Three years ago Google acquired YouTube for $ 1.76 Billion. Analysts have been skeptical how Google can monetize YouTube widely popular video sharing site. However, now YouTube is expected to bring in $ 700 Million revenue this year, which makes it profitable on a stand alone basis.

Another shocking development is that Google has announced that it will pull out of China after its Gmail cyber attack. With the largest internet users and growing, many companies have compromised with China's domestic rules in order to continue doing business. But not Google. While it is second in the internet search engine race with ~ 30% market share, Google revenue in China came in at $ 500 Million annually, 3% of total revenue, enabling it to pull out of the country with relative ease.

With all the wonderful things being said about Google, it is a $ 177 Billion company earning $ 8 Billion annually and counting. That gives it a P/E ratio of 22.1. Yes, analyzing Google based on its P/E ratio alone is folly. One needs to count Google's massive war chest ( $ 24 Billion and rising) as well as its dominating position in the search engine arena which will enables it to pursue growth. Many of Google's product seems to be producing little revenue at all. But combined, it has driven Google's quarterly revenue from $ 86 Million in 2002 to $ 16.7 Billion in 2009. Critics has been wrong so far. But, investors must be cautious that Google shares are not cheap either.

END

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Google Inc. (GOOG) or any other securities.

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