Google (GOOG) Stock – 3 Pros, 3 Cons

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A top engineer, Google Inc. (NASDAQ: GOOG) honcho Eric Schmidt was able to rise through the corporate ranks at Sun Microsystems and then move over to Novell to become CEO. But it was a tough stint because of the onslaught of Microsoft (NASDAQ: MSFT). Then again, some of the best lessons come from failure.

Of course, in 2001 Schmidt became the CEO of a scrappy company with the clever name “Google.” He somehow managed the free-wheeling genius of its founders, Larry Page and Sergey Brin, and grew the tech stock’s business from $100 million to $30 billion in revenue.

Now Schmidt has stepped down as CEO and Page has taken the top spot. In fact, he has already made changes, such as allowing for more openness and encouraging a start-up atmosphere. But can Google return to its glory days and give shareholders something to cheer about? Here’s a look at the pros and cons for GOOG stock.

Pros for Google Stock

A juicy business. When it comes to Internet search, Google is the dominant global player. Through its sophisticated AdWords and AdSense platforms, the company’s highly scalable business continues to capture a larger share of the advertising market. It helps that the advertisements are cost-effective, relevant and measurable. And as the economy improves, the ad budgets will expand.

M&A savvy. Over the years, Google has made some strategic deals. The purchase of YouTube made the company a dominant player in short-form video. Google Maps was also the result of a savvy acquisition. Although, perhaps the most notable deal was for Android. Because of this, Google has become one of the top players in the mobile space (another helpful deal was the acquisition of AdMob, which is a mobile advertising network). With $33 billion in the bank, there is certainly enough resources to pull off many more deals.

Office killer? Google has developed an impressive suite of productivity applications, such as for email, word processing and spreadsheets. They are cloud-based and affordable. More importantly, they may be a threat to Microsoft’s Office franchise, which generates nearly $12 billion in annual operating income.

Cons of GOOG Stock

Losing China. The country represents a huge opportunity for Google but it has had little traction. The Chinese government has made it difficult to grow and there is also the stiff competition from Baidu (NASDAQ: BIDU). Yet Google has made some serious gaffes. The management has failed to play the nuanced politics and has even made it difficult for its engineers to create new products.

Legal troubles. With Google’s growing power, it is becoming the target of various lawsuits and regulatory actions. For example, a federal judge recently blocked the company’s book scanning project. There is even buzz that the Justice Department or the U.S. Federal Trade Commission will launch an antitrust investigation against Google because of its market power for online search. As seen with other tech monopolies — like Microsoft and IBM (NYSE: IBM) — these cases can be brutal and make it tougher to take bold actions against rivals.

The Facebook problem. The web is rapidly becoming social. The problem is that Google can’t seem to figure out how to make the transition. So far, its products and acquisitions in the social media space have been duds. Consider that the company only recently introduced social features — called +1 — into its search engine. Of course, Facebook continues to grow its dominance and destroy its competitors, like MySpace.com. As the platform continues to improve, there’s a chance that users will go there for their online searches.

Verdict on Google

While Google has a tremendous paid search business, the fact is that its other segments have not had anywhere near the same success. Even with Android’s fast growth, it still only contributes a relatively small amount of revenue. Apple (NASDAQ: AAPL), on the other hand, is clearly making huge profits from its iPhone and iPad offerings.

So the challenge for Google is to find a way to monetize its assets. But it is far from clear that Page has the kind of magic of a Steve Jobs. Actually, is there any person who can do this?

In other words, when looking at the pros and cons, the cons have an edge for the stock.

Tom Taulli’s latest book is “All About Short Selling” and you can follow his Twitter account @ttaulli.  He does not own a position in any of the stocks named here.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2011/04/google-inc-nasdaq-goog-stock-msft-bidu/.

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