Threats:
Shrinking PC market:
PC search advertisements account for 33.23% of overall business, however, the number of global PCs in use is expected to decline, beginning from 2015, which could pose a serious threat to Google’s core business.
Competitors:
Major publicly traded competitors of Google Inc (NASDAQ:GOOG) include Baidu.com, Inc. (NASDAQ:BIDU), Yahoo! Inc. (NASDAQ:YHOO), Microsoft Corporation (NASDAQ:MSFT), and AOL, Inc. (NYSE:AOL). All of these companies operate in the same industries as Google and compete directly with it.
Baidu is valued at $32.23 billion, does not pay out a dividend, and carries a price to earnings ratio of 19.25. Baidu offers fast paced growth in all segments of its businesses, and is focused on the Chinese search engine market. Their stock is trading at a discount based on the P/E ratio, and its business model possesses a strong profit margin of 44.12%.
Yahoo! is valued at $25.18 billion, does not pay out a dividend, and carries a price to earnings ratio of 6.46. Yahoo is a diversified digital media company with its offering available in 45 languages and 60 countries. Institutional confidence is portrayed in the company’s institutional ownership of 75%. The profit margin for the company increased from 20.23% in the fourth quarter of 2012 to 34.22% in the first quarter of 2013.
Microsoft is valued at $234.91 billion, pays out a dividend yielding 3.28%, and carries a price to earnings ratio of 15.38. Microsoft remains a dominant force in the PC industry. However, it possesses a diversified business with operations in its Windows segment, Xbox segment, and recently, it entered the smartphone industry with Nokia Corporation (ADR) (NYSE:NOK).
For the past decade, the stock has only risen 16.73%, excluding dividend, being held in a distinct channel. The profit margin for the company in the first quarter of 2013 was 29.55%.
AOL is valued at $3.01 billion, does not pay out a dividend, and carries a price to earnings ratio of 3.56. AOL’s business segment offers many of the same services as Google Inc (NASDAQ:GOOG), and is also focused on the way people connect with information. With an institutional ownership near 100%, there is no lack of confidence from big-money investors. In the fourth quarter of 2012, AOL reported a profit margin of 29.26%, a decline from the 40% range in 2010-2011.
The Foolish bottom line
Financially, Google is as strong as they come. The company possesses accelerated revenue growth, historic margin expansion, and a net cash position. The only true weaknesses in the company are its lack of dividend and high valuation. However, this premium valuation is compensated through explosive growth.
Looking forward, the company is strategically placed to take advantage of the shift to mobile devices, and should experience growth at an accelerated rate. All in all, Google Inc (NASDAQ:GOOG) is the undeniable king of search, and will hand investors returns unmatched by the overall market for decades to come.
The article A Dominant Force in the World of Tomorrow originally appeared on Fool.com.
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