GOOGL - Google

[Guest valueInv]

Gets more bizarre by the day:

 

http://venturebeat.com/2013/10/09/the-brains-behind-calico-bill-maris-of-google-ventures/

[Palantir]

^Are you criticizing Google's capital allocation?  ;D

[Guest valueInv]

^Are you criticizing Google's capital allocation?  ;D

 

And Lack of focus, corporate imperative, strategy, etc.

[Guest valueInv]

Another reminder that Google is a search/tech company but an advertising business:

 

http://gigaom.com/2013/10/09/look-out-google-disconnect-says-its-no-track-search-tool-is-taking-off/

[RichardGibbons]

I think there was the risk that Google would have to pay extremely large amounts of money to Apple to ensure that it was the default search provider across mobile devices.  Insofar as Android is dominating mobile worldwide and Apple is becoming more of a high-end niche product, this risk has largely been defused.  So, a major risk to their advertising business seems to be less scary now than it was a few weeks back, and from that perspective Android has been a huge success.

 

[Guest valueInv]

I think there was the risk that Google would have to pay extremely large amounts of money to Apple to ensure that it was the default search provider across mobile devices.  Insofar as Android is dominating mobile worldwide and Apple is becoming more of a high-end niche product, this risk has largely been defused.  So, a major risk to their advertising business seems to be less scary now than it was a few weeks back, and from that perspective Android has been a huge success.

 

The big threat to the advertising business is from Facebook, Twitter and friends. Not from Apple.

 

Btw, Apple accounts for about half of web browsing traffic, so it is not niche from the advertising point of view. Further, it holds a disproportional share of the high end market, the kind of users that advertisers really want to reach.

[Palantir]

I think there was the risk that Google would have to pay extremely large amounts of money to Apple to ensure that it was the default search provider across mobile devices.  Insofar as Android is dominating mobile worldwide and Apple is becoming more of a high-end niche product, this risk has largely been defused.  So, a major risk to their advertising business seems to be less scary now than it was a few weeks back, and from that perspective Android has been a huge success.

 

Android has certainly been a success, however, huge marketshare for Android doesn't always translate into strong profits for Google, as it was explained above. People will not be necessarily using Google products and search on Android. Android is a class of operating platforms rather than one particular one.

 

Furthermore, while Apple owns the high end, WP is gaining market share at the low end.

 

I agree with ValueInv that Google's biggest threat is new paradigms of finding information.

[worldaccordingtoGARP]

I'm relatively new to the forum and a GOOG shareholder. While Android is certainly an interesting conversation, seems like just the same few points are being slung back and forth without regard to what I think are the more important qualities that will drive Google into the future.

 

Everyone seems to agree that Google's essence revolves around the capacity to find information.  To that end, Google has two amazingly important assets at its disposal, which are not truly reflected on the company's balance sheet.

 

1) Google has the entire history of the Internet, to date, recorded and organized.  It not only has access to today's pages at each URL, but the evolution of each over time, and all of this is indexed in a searchable way.  To replicate this would take an amazing amount of resources and years, and while people might figure out new ways of indexing information moving forward, Google's collection of the past still will be very important.

 

2) As for moving forward, Google has the most advanced, technologically sophisticated, and energy efficient (not to mention largest in scale) system of servers around the world.  To replicate Google's computing scale would take an amazing collection of human and actual capital.  There's a reason why someone like Ray Kurzweil went to work with Google, when he has historically worked alone, on advancing artificial intelligence--only Google has the brainpower (both human and computing) necessary to advance this important area of research.  This is a system of both hardware and software that is truly one of the most unique and important resources in our world today.  (You can see it from Kurzweil's words himself http://www.wired.com/business/2013/04/kurzweil-google-ai/ )

 

Android is a sideshow, albeit an important one, with far too much energy spent on it in this thread IMO.

 

Lastly, I believe that YouTube is one of the most single valuable properties in the entire Internet.  When you think about a company like Netflix, they have great viewership, but an extremely high (and growing) cost of content, and must compete with some aggressive and well-capitalized competition for said content.  Moreover, Netflix must pay Amazon for its Web Services in order to run its platform.  Google, with YouTube, has a negative cost of content--people literally give them their content for free, and Google gets to make most of the money on it--and it all gets to run on Google's amazing hardware/software system. 

 

While Google doesn't segment out YouTube, some analysts peg its revenue number at greater than $4 billion in net revenue (compared to ~$2.4b net the year prior).  Last year was the first year Google started ramping sales in this area, and this will continue to happen.  There are amazing opportunities for further scale, with international sporting events (Olympics, World Cup and cricket all are amazing draws of live sporting eyes outside the US).  Music, comedy, stunts like Baumgartner's space leap all already are growing as attractions on YouTube.

 

Anyway, those are some of my short thoughts on Google, YouTube, etc., would love to see the conversation evolve a little bit away from Android, to some of the other areas that are integral to Google as earnings drivers.

[Palantir]

^I agree with much of the above.

[ItsAValueTrap]

1) Google has the entire history of the Internet, to date, recorded and organized.  It not only has access to today's pages at each URL, but the evolution of each over time, and all of this is indexed in a searchable way.  To replicate this would take an amazing amount of resources and years, and while people might figure out new ways of indexing information moving forward, Google's collection of the past still will be very important.

 

A non-profit does that:

http://archive.org/index.php

 

Hopefully scale continues to be an advantage for Google.  Currently, Google indexes a lot more sites than Bing*.  Overall search quality is better at Google in my opinion.

 

*It's possible that Google can do this because its technology is better, and not because it is bigger and can afford more servers than Bing.

[Guest valueInv]

1) Google has the entire history of the Internet, to date, recorded and organized.  It not only has access to today's pages at each URL, but the evolution of each over time, and all of this is indexed in a searchable way.  To replicate this would take an amazing amount of resources and years, and while people might figure out new ways of indexing information moving forward, Google's collection of the past still will be very important.

 

A non-profit does that:

http://archive.org/index.php

 

Hopefully scale continues to be an advantage for Google.  Currently, Google indexes a lot more sites than Bing*.  Overall search quality is better at Google in my opinion.

 

*It's possible that Google can do this because its technology is better, and not because it is bigger and can afford more servers than Bing.

 

If you think that Google can afford more servers than Bing, take a look at balance sheets.

 

Secondly, ask the question whether indexing more sites really makes search any better for the consumer.

[worldaccordingtoGARP]

1) Google has the entire history of the Internet, to date, recorded and organized.  It not only has access to today's pages at each URL, but the evolution of each over time, and all of this is indexed in a searchable way.  To replicate this would take an amazing amount of resources and years, and while people might figure out new ways of indexing information moving forward, Google's collection of the past still will be very important.

 

A non-profit does that:

http://archive.org/index.php

 

Hopefully scale continues to be an advantage for Google.  Currently, Google indexes a lot more sites than Bing*.  Overall search quality is better at Google in my opinion.

 

*It's possible that Google can do this because its technology is better, and not because it is bigger and can afford more servers than Bing.

 

If you think that Google can afford more servers than Bing, take a look at balance sheets.

 

Secondly, ask the question whether indexing more sites really makes search any better for the consumer.

 

That cash on MSFT's balance sheet can't automatically be converted into the most sophisticated network of data centers in the world. It's not about sheer number of servers, that's only part of it, it's about how they work, how they connect with one another, how little energy they use compared to the competition.  There was a good feature in Wired not too long ago on this part of GOOG: http://www.wired.com/wiredenterprise/2012/10/ff-inside-google-data-center/all/ .  Key quote: "Google sees its network as the ultimate competitive advantage."  People want to simplify Google and say they're a "one trick pony" with search, or "they're just an advertising company" but in reality, their hardware prowess in data center/server construction is second-to-none.  You can't just take money and build something like this.  You need human capital, some of the IP that Google has, and you need a certain kind of culture to keep pushing this infrastructure forward.  This infrastructure isn't just indispensable to Google, it's a key part of the piping that makes the whole Internet go round these days.

 

This stuff at Google is not just for search (and who says "search" anyway, you "Google" it).  Sure, it's what powers search, but it's also the infrastructure that enables YouTube.  You simply cannot have something like that and host it anywhere (AWS works for Netflix for now, but NFLX is caught b/w a rock and a hard place trying to escape that reality).  It's what powers Maps, which as Apple proved, you can't just "do" despite having more cash than any company in the world.  The list goes on.  And Google doesn't need to "beat" Apple to succeed.  Some of Apple's successes are great for Google (like tablets for boosting YouTube's importance).

 

But still, all Google naysayers look past YouTube and have little to say about it, when in the long run, it could very well end up worth more than "search" is today.

 

[Guest valueInv]

Well, surprise, surprise:

 

http://gigaom.com/2013/10/10/google-tv-rebranded-android-tv/

[Guest valueInv]

1) Google has the entire history of the Internet, to date, recorded and organized.  It not only has access to today's pages at each URL, but the evolution of each over time, and all of this is indexed in a searchable way.  To replicate this would take an amazing amount of resources and years, and while people might figure out new ways of indexing information moving forward, Google's collection of the past still will be very important.

 

A non-profit does that:

http://archive.org/index.php

 

Hopefully scale continues to be an advantage for Google.  Currently, Google indexes a lot more sites than Bing*.  Overall search quality is better at Google in my opinion.

 

*It's possible that Google can do this because its technology is better, and not because it is bigger and can afford more servers than Bing.

 

If you think that Google can afford more servers than Bing, take a look at balance sheets.

 

Secondly, ask the question whether indexing more sites really makes search any better for the consumer.

 

That cash on MSFT's balance sheet can't automatically be converted into the most sophisticated network of data centers in the world. It's not about sheer number of servers, that's only part of it, it's about how they work, how they connect with one another, how little energy they use compared to the competition.  There was a good feature in Wired not too long ago on this part of GOOG: http://www.wired.com/wiredenterprise/2012/10/ff-inside-google-data-center/all/ .  Key quote: "Google sees its network as the ultimate competitive advantage."  People want to simplify Google and say they're a "one trick pony" with search, or "they're just an advertising company" but in reality, their hardware prowess in data center/server construction is second-to-none.  You can't just take money and build something like this.  You need human capital, some of the IP that Google has, and you need a certain kind of culture to keep pushing this infrastructure forward.  This infrastructure isn't just indispensable to Google, it's a key part of the piping that makes the whole Internet go round these days.

 

This stuff at Google is not just for search (and who says "search" anyway, you "Google" it).  Sure, it's what powers search, but it's also the infrastructure that enables YouTube.  You simply cannot have something like that and host it anywhere (AWS works for Netflix for now, but NFLX is caught b/w a rock and a hard place trying to escape that reality).  It's what powers Maps, which as Apple proved, you can't just "do" despite having more cash than any company in the world.  The list goes on.  And Google doesn't need to "beat" Apple to succeed.  Some of Apple's successes are great for Google (like tablets for boosting YouTube's importance).

 

But still, all Google naysayers look past YouTube and have little to say about it, when in the long run, it could very well end up worth more than "search" is today.

 

I'd recommend reading the rest of the thread, this ground has already been covered.

 

But there is one thing I want to address:

 

Apple's Maps was launched last fall with iOS 6. During the Jan earnings call, Cook said that the Maps app was generating more usage then than before the iOS 6 launch (i.e. Google's version). Assuming Cook is not misleading during the earnings call -  this is despite:

- The many problems with Apple's Maps

- Massive publicity everywhere on Apple's failure

- Apple promoting other maps application (including Google Maps) front and center on the App Store.

 

i.e. the Maps fiasco has not caused Apple to lose many users. On the contrary, Google Maps has probably lost a majority of its iOS users.

 

This goes to tell you that users are lazy and they will use whatever is default on their home screen.

 

 

Now, what chunk of iOS users will Google search lose if Apple switches its default search engine to Bing in Safari?

They have already done it with Siri.

 

[Guest valueInv]

Something to think about:

 

http://www.fool.com/investing/general/2013/10/10/why-android-doesnt-really-have-80-of-the-market.aspx

[Palantir]

I'm very happy with Apple Maps, it has served me pretty well, except for one bizarre location it could not figure out.

[Guest valueInv]

Hahahaha:

 

 

http://news.cnet.com/8301-17852_3-57607238-71/the-retaliation-begins-google-profiles-get-schmidt-faced/

 

Can't wait to see the impact of Glassholes becoming more common.

[Guest valueInv]

This should tell you something:

 

http://www.theinquirer.net/inquirer/news/2299280/eric-schmidt-draws-laughs-with-claim-that-android-is-more-secure-than-ios

[Guest valueInv]

On that "Android gives Google control" theory:

 

http://venturebeat.com/2013/10/16/facebook-ad-profit-a-staggering-1790-more-on-iphone-than-android/

http://techcrunch.com/2013/10/16/akamai-half-of-all-internet-connections-now-at-4mbps-safari-remains-most-used-mobile-browser-globally/

[fareastwarriors]

3Q Earnings

 

http://investor.google.com/earnings/2013/Q3_google_earnings.html

 

 

...

Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our Network members, increased approximately 26% over the third quarter of 2012 and increased approximately 8% over the second quarter of 2013.

 

Cost-Per-Click – Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our Network members, decreased approximately 8% over the third quarter of 2012 and decreased approximately 4% over the second quarter of 2013.

 

TAC – Traffic acquisition costs, the portion of revenues shared with Google’s partners, increased to $2.97 billion in the third quarter of 2013, compared to $2.77 billion in the third quarter of 2012. TAC as a percentage of advertising revenues was 24% in the third quarter of 2013, compared to 26% in the third quarter of 2012.

 

The majority of TAC is related to amounts ultimately paid to our Network members, which totaled $2.22 billion in the third quarter of 2013. TAC also includes amounts ultimately paid to certain distribution partners and others who direct traffic to our website, which totaled $755 million in the third quarter of 2013.

 

[siddharth18]

 

Amazing. Google's moat just keeps growing and growing as it becomes deeply entrenched into our way of lives.

 

Topeka Capital analyst Victor Anthony called Google’s results “a very good print” that was ahead of his forecasts.

“The bear case on the stock was for pressure on search volumes in the quarter, so the 26% paid clicks growth, a three point acceleration from the second quarter, was particularly robust versus expectations,” he told MarketWatch. However, he noted the “further deceleration” in cost-per-clicks, a key metric for Google, which Anthony said was “a bit disappointing.”

 

 

Analysts are focusing on the wrong metric. CPC doesn't matter, eCPM (Effective cost per 1000 pages served) does. eCPM = CPC x CTR. Design changes that cause CTR (click through rate) to go up may cause the value per click to be less  and cause advertisers to pay less per click. But the overall trend should be upwards as more advertisers are added, there's more competition for clicks and efficiency to monetize traffic increases.

 

 

[ItsAValueTrap]

 

Amazing. Google's moat just keeps growing and growing as it becomes deeply entrenched into our way of lives.

 

Topeka Capital analyst Victor Anthony called Google’s results “a very good print” that was ahead of his forecasts.

“The bear case on the stock was for pressure on search volumes in the quarter, so the 26% paid clicks growth, a three point acceleration from the second quarter, was particularly robust versus expectations,” he told MarketWatch. However, he noted the “further deceleration” in cost-per-clicks, a key metric for Google, which Anthony said was “a bit disappointing.”

 

 

Analysts are focusing on the wrong metric. CPC doesn't matter, eCPM (Effective cost per 1000 pages served) does. eCPM = CPC x CTR. Design changes that cause CTR (click through rate) to go up may cause the value per click to be less  and cause advertisers to pay less per click. But the overall trend should be upwards as more advertisers are added, there's more competition for clicks and efficiency to monetize traffic increases.

 

Right on!  CPC is not that great of a metric.  I wonder if Google is trying to troll the analysts who follow the stock.

[hyten1]

man this thing, i have been following this since the beginning, i have always wanted to own it, but it never hit my price, this sucker just keeps going up

[siddharth18]

 

Amazing. Google's moat just keeps growing and growing as it becomes deeply entrenched into our way of lives.

 

Topeka Capital analyst Victor Anthony called Google’s results “a very good print” that was ahead of his forecasts.

“The bear case on the stock was for pressure on search volumes in the quarter, so the 26% paid clicks growth, a three point acceleration from the second quarter, was particularly robust versus expectations,” he told MarketWatch. However, he noted the “further deceleration” in cost-per-clicks, a key metric for Google, which Anthony said was “a bit disappointing.”

 

 

Analysts are focusing on the wrong metric. CPC doesn't matter, eCPM (Effective cost per 1000 pages served) does. eCPM = CPC x CTR. Design changes that cause CTR (click through rate) to go up may cause the value per click to be less  and cause advertisers to pay less per click. But the overall trend should be upwards as more advertisers are added, there's more competition for clicks and efficiency to monetize traffic increases.

 

Right on!  CPC is not that great of a metric.  I wonder if Google is trying to troll the analysts who follow the stock.

 

Hmm. Maybe not...for one, Eric Schmidt wants to sell nearly half of his stock!

 

 

Having said that, I think GOOG is one of those businesses that resembles a toll booth that benefits from inflation as well as congestion: The more cars that want to travel on Google's bridge, the more have to bid. The bids just keep going up and up until the return on advertising budget becomes mundanely low. The network effects are insane and there's no other competitor far as eye can see.

 

If an Geico wants to capture insurance leads online or if a Cigna wants to capture health insurance leads, there's no option but to compete with hundreds/thousands of other insurance companies/agencies/brokers trying to do the same for every single keyword. Google just sits back and watches them overbid each other and in effect transfer (most) if not all of the value of the makes its way into Google's bank account. Have you seen the CPCs for top paying keywords?

 

http://www.wordstream.com/images/where-does-google-make-its-money.png

 

 

If you own Google, the only problem you ought to worry about is whether Google still owns the piece of a consumers' mind. The more time passes, the more complex and harder it becomes to remove Google from one's life and harder for a competitor to replicate their brand. I reckon this will continue for a long, long time and Google will become larger than most people can currently imagine.

 

 

As e-commerce increases in emerging countries, and the value of each visitor proportionally increases, Google's ability to monetize each user will only increase disproportionately. In 10 years, when a lot of commerce is conducted online in countries like Brazil/India, the cost for keywords like "insurance" and "lawyer" will be multiples higher than today. As insurance companies move their sales online, they will still bidding for keywords that previously weren't bidded on. If cost per click of insurance keyword in Brazil or India increases from $1 to $20, Google's cost won't jump 20 fold.

 

Google really has no comps. Apple products might be deemed a "fad" in X years or Microsoft's windows will be replaced by a better operating system in X years, or people might become jaded with facebook in X years.

 

But Google is fundamentally a necessity and a utility. Google's raison d'être is not to provide entertainment, but to fulfill a need. In a recession or a boom Google simply can't become irrelevant because it fills the user's need to find an answer and the advertiser's need to find a user that asks a question that can be answered by the advertiser.

 

How hard will it be for someone to remove Google from consumer's mind as the "go to" search engine and replace it with an alternative? Just ask Bing how much cash it is bleeding trying to play catch-up with Google...or Charlie Munger:

 

Google has a huge new moat, in fact I've probably never seen such a wide moat

 

 

-Charlie Munger

[worldaccordingtoGARP]

Nice comments so far on the earnings today and Google's moat, and great infographic on the most expensive keywords.

 

I just wanted to add two quick comments on the earnings. Google-owned site revenue was up 22% year-over-year. This is a big signal to me that YouTube revenue is ramping up and the monetization plan is working nicely. And, the "Other" segment revenues were up 85% yoy. This is where the Google Play resides and Chrome-based products as well. The ecosystem built on Android and Chrome is starting to earn some money in its own right.