As many of you know, I’m a long term believer in a few companies such as Facebook and Amazon. One other company that I’ve often praised is Google (GOOG). I just think the long term opportunities are incredibly vast. I always tend to look at valuations based off of factors such as the P/E ratio, growth in sales and profits. For a company like Google, that only gives me part of the story though. That is especially true since Larry Page got back in charge of the internet giant. Why? Because the company is back to being nimble, trying different things that may or may not pan out, etc.
It’s All About Big Data
In this era, it’s all about owning data and being able to connect different data points together. Google has mastered this for over a decade now and I can’t think of anyone who could possibly catch up. As I’ve argued before, the only company to possibly compete with Google in that regard is Facebook; hence the incredible rivalry between the two. I would argue that while some think Facebook could eventually lose its “mojo” and become the next MySpace, Google’s data advantage is much more “sustainable”. How so? Just think of Maps.
If mobile is the new environment, then having advanced maps is critical. Google is so ahead of everyone else in that regards. It was able to leverage that when Apple tried (and failed) to go on its own. Already, one of the major weaknesses of the new Blackberry (BBRY) lineup is the absence of Google maps (or a solid alternative).
When I hear critics say that Google is not making money out of Android, I think they’re missing the point. It’s not about making money upfront. It’s about gathering data and offering services to those users. Another example would be how quickly speech recognition on Android has improved.
Why Is “Mapping Data” So Critical?
It’s easy to overlook how important it is.
-It helps Google better understand where things are when users are searching for local businesses online
-It helps provide the best GPS serve through Google maps
Currently, Google continues to work on self-driving cars which have been logging thousands and thousands of miles and will certainly be part of our future. Can you imagine anyone else trying to work on this opportunity? Certainly not car companies…!
Then a few months ago, Page was spotted on the New York subway wearing Google Glasses… what are those? It’s hard to say what they are and even more of a challenge to guess what they will become. If you could have glasses that gave you information about where you’re going, about your heart beat, that was connected to your phone, that could access any data on it (email, GPS, internet, etc)… You can see some of what Google glasses does here. I’m not saying it’s a billion dollar business, but it might be. Apple’s secret “iWatch” project has recently been discovered by the New York Times and Wall Street Journal and it will certainly serve a growing market (currently occupied by smaller players such as Fitbit and Jawbone) but I do believe Google has the upper hand here.
How much are all of these “possible” opportunities worth? Difficult to say. Especially if you’re investing with a short or medium term horizon. I would argue though that investors with a 10 or 20 year horizon should consider such “ex” factors when trying to determine Google’s value. I personally think the upside is significant but very uncertain given the fact that these (and others such as Google Fiber, Google docs, etc) have high potential but are very difficult to predict.
When I look at companies such as Apple and Microsoft with a 10 year horizon, I don’t see such exciting possibilities. What are your thoughts? Would you hold Google with a 20 year horizon? Or maybe Amazon (AMZN)? Or Facebook (FB)?
Disclaimer: No position on Google (GOOG)