Tuesday September 25, 2012
by Richard Moroney, editor Dow Theory Forecasts
Google (GOOG) is one of just two S&P 500 Index companies that has grown cash provided by operations more than 15% in each of the last nine ﬁscal years, a streak that should stretch into 2012.
In the ﬁrst half of the year, Google’s operating cash ﬂow climbed 19%, and the consensus projects 16% higher earnings per share in the last six months of 2012.
Although Google aspires to invent gadgets consumers never knew they wanted -- from web glasses to self-driving cars -- its core business remains advertising, which accounted for 96% of sales last year.
Most of Google’s biggest strategic decisions support one objective: ﬁnding new ways to bring ads to consumers. Today, it powers 86% of global searches and 93% of mobile searches, according to industry researcher Net-Marketshare.
Google said the number of mobile searches has quadrupled over the last year. By one estimate, mobile devices could account for 25% to 30% of all U.S. web searches in 2012.
The future of Google’s search business seems to lie in Android, the company’s mobile operating system. More than 500 million Android devices have been activated — versus about 327 million iPhones and iPads — and that total climbs by more than 1.3 million new accounts each day.
Google acquired Motorola Mobility in May and now must first turn around Motorola’s mobile-device unit, unprofitable in 14 of the past 16 quarters.
The ﬁrst crop of Motorola smartphones released on Google’s watch will arrive ahead of the holidays, and management intends to consolidate Motorola’s vast phone lineup, which featured 27 models last year.
Continuing its expansion into mobile services, in August Google paid $25 million for Frommer’s, a publisher of travel guides.
Net cash on the balance sheet has swelled to $43.12 billion, or nearly $112 per share, up tenfold over the last seven years. Credit that cash hoard to growth in free cash ﬂow, up at least 9% in 24 of the past 28 quarters.
At 18 times trailing earnings, the stock trades 32% below its ﬁve-year average and 8% below the median for S&P 1500 internet stocks. Google is a Long-Term Buy.
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