Google Inc. (GOOG)’s Making $800 Look Good

The recent rise in Google Inc. (NASDAQ:GOOG)‘s stock price this year has been nothing short of remarkable. The stock has climbed 18% year to date, and when factoring the $636 low in November, shares have soared more than 30% over the past four months. Yet, on a long-term discounted cash flow basis, a case can be made that the stock is still very cheap.

Does $800 really mean anything?
I’m beginning to see articles suggesting that Google Inc. (NASDAQ:GOOG) is the next Apple Inc. (NASDAQ:AAPL) , meaning that the stock has reached its peak and is due for a crash. Arguments suggest that Google Inc. (NASDAQ:GOOG)’s price-to-earnings ratio of 25 is somehow too high. And the $800 mark is too much weight to carry. I don’t buy it. Especially not when compared to Amazon.com, Inc. (NASDAQ:AMZN)‘s P/E of 3,000.

Granted, these two are in different businesses, but strictly from an operational standpoint, Google Inc. (NASDAQ:GOOG) has more than a 25% advantage over Amazon in operating margin. And Google Inc. (NASDAQ:GOOG)’s profit margin of 21.40% is better than Amazon by… well… 21.40%. To suggest that Google Inc. (NASDAQ:GOOG) doesn’t deserve a P/E of 25 is unfair is to say even with its strong underlying business, it still doesn’t amount to Amazon.

Besides, investors have to realize that Google Inc. (NASDAQ:GOOG) has changed drastically since the time it went public in 2004 at $84 per share. Since then, not only has Google Inc. (NASDAQ:GOOG) grown to become the largest search engine in the world, but in Android, Google Inc. (NASDAQ:GOOG) has the world’s most dominant mobile operating system, well ahead of Apple Inc. (NASDAQ:AAPL)’s iOS, even though Apple Inc. (NASDAQ:AAPL) has made some ground in the recent quarter.

And just for good measure, YouTube, which Google Inc. (NASDAQ:GOOG) acquired in 2006 for $1.65 billion, has been ranked as high as the second most-visited site on the Internet. These are two very important assets that have begun to pay to pay huge dividends. While the $800 per share seems like a large number, Google Inc. (NASDAQ:GOOG) supports this valuation each quarter with solid top- and bottom-line numbers.

Mobile is still the key
Unlike Apple Inc. (NASDAQ:AAPL), which makes tons of money selling hardware, Google Inc. (NASDAQ:GOOG)’s bread-and-butter is advertising. And, nobody does it better. And even though Facebook Inc. (NASDAQ:FB) has begun to gain meaningful traction, particularly with mobile, Google Inc. (NASDAQ:GOOG) is strongly positioned to avert near-term threats in the mobile segment.

To that end, Google Inc. (NASDAQ:GOOG)’s recent mobile investments such as Android and Motorola patents have (arguably) placed Google Inc. (NASDAQ:GOOG) in a better mobile position than what it had in the desktop environment. And the company is doing better than expected in terms of clicks and search market share. And although it’s true that Google Inc. (NASDAQ:GOOG)’s traffic acquisition costs, or TAC, continue to rise, management doesn’t mind paying distribution partners as long as the company is able to grow market share.