Google Inc.GOOG

Morningstar Rating

Stock Research and Analysis

by Larry Witt, CFA

Google's dominance in Internet search has led to meteoric revenue growth and fantastic profits. This profitability has allowed the company to enter additional advertising markets and new industries, including software as a service and the mobile industry. Read more

Bulls Say

Online advertising is growing very quickly as large advertisers are increasingly attracted by its measurability and its high returns on investment.

Because of its effectiveness and measurability, we think paid search would be the least affected, though not immune, form of advertising in an economic downturn.

Google has a superior technical staff that will continue to innovate faster and better than the competition.

Google's brand strength should help attract customers to try its new products like online software, Google Checkout, and its mobile platform.

Google's massive cash position, profitability, and corporate image allow the company to outbid competitors when it comes to acquiring hot technologies and key personnel. Read more

Bears Say

Other than brand strength, there are very few switching costs in Internet search. Google would suffer if a competitor could develop a superior search engine and gain marketing buzz.

New business lines for Google will be less profitable, and any significant investment may ultimately destroy shareholder value.

Large, expensive efforts like Google Earth digital mapping software may enhance Google's image but will do little to generate additional revenue for the company.

Now that many key employees are financially independent, long-term employee retention may become more difficult.

After acquiring YouTube, Google may be constantly distracted by lawsuits claiming digital copyright infringement. Read more

Strategy

Using behavioral insights, demographic data, and geographic targeting, Google wants to provide highly relevant advertising across a variety of media; the more relevant the advertising, the more advertisers Read more

Management

Larry Page and Sergey Brin founded Google in 1998 and now lead the company as a triumvirate with Eric Schmidt, who has been CEO since 2001. Schmidt had previously been CEO of Novell NOVL and chief technology officer of Sun Microsystems JAVA. Many have Read more

Profile

Google provides a free search engine for users around the world and generates revenue whenever a user clicks on a text ad displayed alongside the search results. This represents Read more

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Weekly Market Wrap: 1/22/2010
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