Google Inc. (NASDAQ: GOOGL) introduced several promising new products this week, and a number of analysts recently have issued upbeat assessments of the company’s non-search businesses, but the stock has continued to remain range-bound.
Investors are justifiably worried about Google’s formidable competition, and they fear that the company has become a clone of Microsoft Corp. (NASDAQ: MSFT) as the software maker was around 2002, with a legacy business whose growth is slowing and no significant new opportunities. But Google has a chance to show that these worries are unfounded, as it has many more positive catalysts than Microsoft did at the beginning of this century.
Google this week introduced Android Pay, the search giant’s answer to Apple Inc.’s (NASDAQ: AAPL) mobile payment system, Apple Pay. Android Pay will allow users of phones with advanced versions of Google’s Android operating system to pay for items with their devices. Google says that 700,000 stores have agreed to accept its new payment system.
The search giant also announced that it would add “buy buttons” to its search results. Clicking on the buy buttons will enable users to purchase products promoted in Google’s search ads without entering any other websites.
Meanwhile, Bank of America Merrill Lynch estimated this week that YouTube has more than 1 billion active users per month, putting it on par with Facebook Inc. (NASDAQ: FB) in that metric. According to the firm, YouTube is worth $50 billion, which exceeds the market caps of eBay Inc. (NASDAQ: EBAY), Yahoo! Inc. (NASDAQ: YHOO) and Starbucks Corp. (NASDAQ: SBUX). “YouTube is a big asset that warrants a big valuation,” the firm stated.
Also upbeat on Google was research firm Canaccord Genuity. YouTube, Google Play and the company’s ad technology businesses are growing quickly and should enable its revenue to grow by teen percentage levels through at least 2018, the firm stated.
Google does have tougher competition than ever before, as social networks, led by Facebook, collect billions of ad dollars and consumers often use Amazon, rather than search, to find products.
Unlike Microsoft circa 2002, Google does have relatively new, vibrant, rapidly growing businesses, as Canaccord pointed out. Moreover, YouTube, Google Play and the company’s ad tech business are at the forefront of current explosive trends. Given the enhanced convenience of mobile payment systems, Android Pay could become very popular, providing yet another significant growth engine for Google.
Also unlike Microsoft circa 2002, the search giant has other potential growth engines, including its TV and Internet service, Google Fiber and its driverless cars. Moreover, Google’s buy buttons could help it compete with Amazon.com Inc. (NASDAQ: AMZN) by emulating that company’s highly convenient e-commerce model.
Despite Google’s increased competition, its search business, which still accounts for the vast majority of its revenue, continues to grow, albeit at slowing rates. If over the next year, its growth stabilizes or decelerates very slowly, while the company’s other businesses at least maintain their current high growth rates, investors will become more upbeat on the stock. Of course, the stock’s outlook also will improve if any of Google’s newer initiatives start to really take off.
By Larry Ramer