Google at 14: Better than everSeptember 4, 2012: 1:40 PM ET
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.
Happy 14th birthday, Google!
Sure, Google (GOOG) doesn't officially recognize its anniversary until September 27. That's when you'll see the celebratory doodle. But the search engine leader was incorporated on September 4, 1998. So as far as I'm concerned, today is the day that Google turns 14. Only one more year until its big quinceañera!
Fortunately for Google -- and its investors -- the company is not suffering from early-teen awkwardness. The stock, while still underperforming the Nasdaq this year, has staged an impressive rally in the past three months. Shares of Google are within spitting distance of their 52-week high and just 8% below their all-time high of $747.24 from November 2007.
Can Google soon make it all the way back to where it was before the Great Recession began? It looks likely.
Google still has lots of growth potential. Analysts expect its earnings per share to increase 18% this year and 16%, on average, for the next few years. So the stock, at 16 times 2012 earnings forecasts, seems reasonably valued.
Google is trading at only a slight premium to Yahoo (YHOO) even though Yahoo -- which is hoping that it has finally found the right CEO in ex-Googler Marissa Mayer -- has been a "turnaround story" for nearly a decade. And Google still trades at a big discount to social network "leader" Facebook (FB). Despite the fact that Facebook's stock hit a new low again on Tuesday, its shares still are valued at a whopping 36 times 2012 earnings forecasts.
I've long maintained that Google is a great company and stock even though it lacks the social heft of Facebook. Google is an advertiser's dream because it is relatively boring. People go to the site to find actual information, not chat with friends.
Who cares if the site isn't "sticky?" That's the point. I don't want or need to spend hours on Google. A sponsored search result for something is still far more powerful, relevant and efficient than sponsored stories from "friends" -- i.e. people I haven't seen in person since middle school.
Google also seems to have a better mobile strategy than Facebook. For one, Google is now generating mobile ad revenue from its video subsidiary YouTube. Google also has the Android operating system in its arsenal
Of course, Google faces some significant risks. Apple's (AAPL) big courtroom victory over Samsung, the top smartphone company using Android, could be a problem. For now, investors don't seem too concerned. And there are reports that Apple CEO Tim Cook and Google CEO Larry Page are talking (or maybe texting ... does Page have his voice back yet?) about ways to resolve future mobile patent disputes.
But if Apple, emboldened by the legal triumph over Samsung, continues to wage the type of "thermonuclear war" against Android that the late Steve Jobs promised, Google's purchase of Motorola Mobility could wind up being a colossal mistake.>
Google also occasionally spends big bucks on projects that don't pan out as well as hoped. That's not likely to change.
I'll be the first to admit that Google+ has not caught the world by storm. I've called it Diet Facebook. It's also not clear if newer Google ventures like its high-speed fiber network in Kansas City or futuristic virtual reality glasses will ever lead to significant revenue.
And for any investors who are wary of putting too much voting control in the hands of a few, Google's upcoming stock split, which will create a third class of Google shares, will give even more control over the company to Page, his fellow co-founder Sergey Brin and chairman Eric Schmidt.
Sure, staying ahead of Facebook and keeping pace with Apple will be daunting. But Google's troika deserve a lot of credit ... and the benefit of any doubt. The core business of search isn't going away anytime soon. Google has held off challenges from Yahoo and Microsoft (MSFT) so far. And as long as Google remains the undisputed leader in search, it's hard to quibble with any of the decisions made by Google's Big Three in the past decade.