Bet on Google Inc (GOOG) as a Next Generation Utility

Strong Financials

Google enjoys a strong cost advantage with its datacenters. Because it runs billions of dollars of hardware, it saves money by designing its own servers. Google’s economies of scale help it to keep costs down, even with a five year revenue growth rate of 21.9% and a five year earnings per share (EPS) growth rate of 20.5%. With a total debt to equity ratio of 0.07 and a ROIC of 15.1%, the company keeps churning out profits like a good utility.

Microsoft Corporation (NASDAQ:MSFT) is trying to deal with the decline in its legacy software business. While businesses continue to buy Windows and Office products, the move to mobile is hurting Microsoft’s growth. The company has a five year revenue growth rate of just 5.5% and a five year EPS growth rate of 3.8%. Microsoft’s profit margin of 21.6% is similar to Google’s profit margin of 20.9%, but Google is better situated to profit as a cloud based utility.

Yahoo! Inc. (NASDAQ:YHOO) is coming back from the dead with a five year EPS growth rate of 44.4%, even if its revenue is shrinking with a five year revenue growth rate of -7.9%. Its ROIC of 29.1% is high, but fundamentally Google Inc (NASDAQ:GOOG) has a better grip on the interconnected world.

Facebook is still a baby, but its profit margin of 0.3% and earnings before interest rate and taxes (EBIT) margin of 9.4% are questionable. The company may provide spectacular growth, but its CEO has made it clear that money is not his first priority, and investors should tread carefully.

Conclusion

Google Inc (NASDAQ:GOOG) is the utility for the twenty first century. Consumers need the internet on a daily basis to discover new information and answer questions. Google’s datacenter network and large userbase give it a strong competitive advantage. Microsoft is trying to upgrade Bing and make a profit online. Yahoo! Inc. (NASDAQ:YHOO) is still searching for direction and growth, while Facebook looks like more of an experiment than a profit seeking corporation. Google offers quality products, growth and strong barriers to entry; a very profitable mix.

The article Bet on Google as a Next Generation Utility originally appeared on Fool.com and is written by Joshua Bondy.

Joshua Bondy has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook, Google, and Microsoft. Joshua 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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