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Google: A Visionary Value?
07/04/2013 9:00 am EST
Committed to technological innovation, Google is well-positioned for enormous future growth, according to Nicholas Vardy of The Alpha Investor Letter.
More than 300 million people conduct over a billion searches on Google (GOOG) every day. It is rapidly emerging as the dominant consumer technology company of the early 21st century.
Google's momentum coincides with Larry Page's ascent as the undisputed leader of the company. He has made Google formidably and relentlessly focused.
As futurist Ray Kurzweil has argued, the pace of change in technology is not just linear. It is exponential—or accelerating. I believe much of Page's focus on relentless innovation ties in with this important fundamental belief about this pace of technological development.
Why am I convinced Kurzweil's vision lies at the heart of Google's and Page's philosophy? In January, Google hired Kurzweil, a phenomenally accomplished entrepreneur and futurist who had never worked for anyone but himself, as director of engineering at Google.
Google is, of course, best known for its search business. But the sheer number of businesses Google is involved in borders on breathtaking.
Google generates the bulk of its revenue by delivering online advertising. It's the cash cow that allows Google to experiment with a wide range of other efforts. Today's advertising includes videos, text, images and other interactive advertisements that run on computers and mobile devices, including smartphones and handheld computers, such as netbooks and tablets.
YouTube provides a range of video, interactive, and other advertisement formats for advertisers to reach their audience. Google also helped develop the Android mobile software platform—the No. 1 rival to the dominance of the Apple (AAPL) iPhone.
Its "open source" approach has paid off. Google is now the No. 1 mobile platform in the United States.
Thanks to Larry Page's commitment to dominating the Internet, Google has been diversifying into a wide range of other businesses. In 2011, they acquired Zagat, the restaurant-rating agency. In 2012, Google acquired Motorola Mobility. And Google's Shopping business has managed to list more than 1 billion products.
Google Fiber is a big and long-term bet by management, and one that potentially can transform the company's future and reshape the entire Internet. Google X, its "moonshot" research lab, is developing wearable computers and driverless cars.
Individually, each of these non-core ventures has an uncertain future. But taken together, the potential of any single, unexpected breakout product could provide a huge boost.
Perhaps surprisingly, hedge funds weren't focused much on Google until Stan Druckenmiller—George Soros' former chief investment officer—picked Google as his No. 1 stock for the next 12 months at the Ira Sohn investment conference in April. Druckenmiller pointed out that no other US company was as well positioned as Google in its market.
With Google trading at a forward price-to-earnings ratio of 16.5, the stock is not cheap. But then again, it never has been.
That said, Google's share price pulled back recently from the all-time high of $915 on May 15. So now is a particularly good time to buy this stock to take advantage of Google's enormous future upside.
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