Google Inc (GOOG): The Tech Giant Is Not Impervious To This

It’s easy – but not true – for investors to consider Google Inc (NASDAQ:GOOG) a special case; they would be wrong.

Google Inc (NASDAQ:GOOG) is good, yes. It’s an innovative company with a corporate culture that encourages a seemingly endless stream of new gadgets that delight and entertain. It’s also maintained a high level of profitability based on online advertising mostly. There are only two quarterly periods going back to mid-2008 where it didn’t report a 20% higher margin. That’s led to amazing growth in the value of the company’s shares of 149.4% since the beginning of 2009.

The question then becomes how real is it? Is Google Inc (NASDAQ:GOOG) truly special, or is there something else at work here? Maybe it’s an innovators advantage that puts Google Inc (NASDAQ:GOOG) in the forefront of the media or maybe it’s the way the company handles the media that really moves it to the forefront. That and the savvy way it has made it the default search engine for the English-speaking world.

Overseas challenges

But that isn’t the case outside the English-speaking world. Take a look at this chart of profit margin for four major search engines:

GOOG Profit Margin Quarterly data by YCharts

Odds are that 90% of the people in North America have never heard of two of them. But I guarantee you that Google knows – and fears – both.

Baidu.com, Inc. (ADR) (NASDAQ:BIDU) is a Chinese search engine that dominates that regional market. It has insane profitability – once passing a 50% margin – and could easily make the transition to the rest of the world if it wants to. The company’s stock – even with the profit margin – has been declining recently and is down to a P/E of 17.5. There’s volatility there, certainly, but also a chance for real profit if the company expands outside of its traditional markets.

Another one that Google Inc (NASDAQ:GOOG) should be worried about – and likely is – is Yandex. Again, most investors will never have heard of it, but it’s profitable and its shares are growing.

Since June of 2012 shares have grown 50.5% and it now surpasses Google Inc (NASDAQ:GOOG) on the number of analysts giving it a buy rating. With a strong majority of the Russian- search market and a growing presence elsewhere, Yandex is another non-English speaking company – it’s based in The Hague – that could move into the U.S. quickly.