I feel that Google has more room to run, and I feel that eventually it will advance to $1,000 per share, with the belief that market conditions stay the way they are now. Google Inc (NASDAQ:GOOG) is trying to branch out to different business segments, but its main revenue source is advertising. Google reported that in 2012 it generated $50 billion in revenue for the first time ever.
The company has a market cap of $261.5 billion. That’s a big valuation, but earnings growth over the next five years is expected to be at around 15%. The price-to-earnings ratio is 24. This number is still low, and I think investors have a great opportunity to invest in a company that continues to go up.
King of display ads
Google Inc (NASDAQ:GOOG) is the king of display ads, and this shows in the numbers that it releases each year. Currently the company takes in more than 41% of all digital ad revenue in the U.S. Search still gives Google value, but display ads are turning into a $5 billion business.
Google took the lead for ad revenue in 2012, earning approximately $2.3 billion. Facebook Inc (NASDAQ:FB) was in second place for 2012 at about $2.2 billion.
In the past, it seems that Google and Facebook Inc (NASDAQ:FB) have always traded places on leading in ad revenue, but Google seems to have the upper hand over the next few years. According to emarketer, Google will lead 2013 in ad revenue, coming in at $3.1 billion. The higher ad revenue forecast should be attributed to the future growth of ads on mobile devices.
Facebook in competition mode
It seems Google has a lot of work to do to keep Facebook Inc (NASDAQ:FB) from digging into its ad revenue. Google may be doing better against Facebook in terms of desktop display ads, but when it comes to mobile ads, Facebook is far outpacing its nearest rival. Facebook is expected to take 28% of mobile display ads in 2013, while Google Inc (NASDAQ:GOOG) is only expected to get 19%.
Why are mobile display ads more important? Well it seems that advertisers are paying more for mobile ads. With the growth of smartphones and tablets, more money is being spent on mobile ads. It’s common sense that any tech company wanting to compete in advertising in the future must start growing in mobile ads. Otherwise it will be left behind in terms of revenue.
What’s most impressive is that U.S. mobile ad spending is expected to grow by 77% in 2013 to about $7.3 billion. That’s not as big as the growth in 2012, when mobile ads grew by 174%, but it’s still significant growth nonetheless. This battle is far from producing a clear winner, but it goes to show that Google can raise its valuation if it shows an increase in mobile display ads.
Bing wants a peace of the pie
Microsoft Corporation (NASDAQ:MSFT) wants to become a player in display ads as well with its Bing search engine. The U.S. online market share in advertising revenue for 2012 was around $39.5 billion. Microsoft Corporation (NASDAQ:MSFT) had 5.7% in 2012, while Google was at 44.9%. Microsoft still has a long way to go, but it continues to build its ad revenue. Facebook was slightly ahead of Microsoft in the same time period with 6.5% of total display-ad revenue.
It seems that Bing is starting to compete against Google Inc (NASDAQ:GOOG) in display ads. Whether or not Microsoft Corporation (NASDAQ:MSFT)’s Bing ever edges higher than Google in ad spending remains to be seen, and even then it will be many years before we see that happen. If you are a long-term investor in Google, this should worry you slightly because Bing can keep taking market share away from Google.
