Android, even indirectly, is but one tool in Google's money-making arsenal
On Monday Google stock (GOOG) closed above $861, marking a new all time high for the Mountain View search giant. This news, of course, sparked a bunch of headlines talking about it. Most of the “stories” behind the headlines are lacking any substance whatsoever. “Google hit a new all time high. It rallied by x% to close at $y, and the stock is now up over z% year to date.” That’s typical. Useless. Garbage. Fill-in-the-blank process stories.
So let’s talk a bit about Google. Google went public in the summer of 2004. I remember it well because, as an analyst in the financial community, the online auction style of IPO they forced upon Morgan Stanley and Credit Suisse was very much unconventional. And that pretty much sums up how Google operates. It runs the show, and it’s not your average show.
Google went public at $85 per share and had a massive run leading up to 2008, when the whole market collapsed as a result of bad mortgage portfolios (the whole collateralized debt obligation market, asset backed commercial paper, etc). So after peaking out around $700, the stock tanked, dropping briefly below $300. As the market recovered from the housing market problems, Google recovered, too. But not to where it once was. It had been bouncing between $500 and $600 for a couple of years.
Wall Street had moved onto other exciting stories. Google was still growing, but not by super high double digits, or triple digits like before. Yet grow, it did. And collect cash it did. And launch important new businesses like Android, it did.
As goes the mobile space, so goes Google?
In mid 2012, Google roared back to life. Maybe not so coincidentally, this lines up well with the global onslaught of Android market share gains in the mobile industry. Yeah, we know that Google isn’t directly monetizing Android because it is an open-source product. But it has become very clear that mobile traffic is monetizable. Last October, when Google reported its Q3 results for 2012 (and we led the charge against knee-jerk reactions), Larry Page revealed that revenue from mobile devices had nearly tripled year over year. The mobile revenue run rate for Google was then $8 billion. Not all of this is from Android, obviously. But a good chunk of it is.
So here we have Google making new highs, rising to $861 and change as of May 6. What’s happening? Wall Street has gotten interested in Google again. Marc Andreessen has gone on record saying that the next 3 billion people are about to get connected to the mobile Internet using $50 Android phones. Do you think maybe Google will monetize this through is usual means of advertising? Eric Schmidt recently announced that YouTube has more than one billion unique visitors every month. You think, just maybe, that this is much larger than any single TV network on the planet?
What comes next ...
Now that Google Glass is out(ish), and integrates tightly with Android, who knows what’s next? Now that I can get a $269 (Canadian) Samsung Chromebook as a second machine that we keep near the kitchen, who knows how fast we’ll all begin to move more and more of what we do into the cloud.
As a Google shareholder I always chuckled when Wall Street crapped on the stock for a supposedly weak earnings print, or pressure on the all-important “cost per click” metric (what advertisers pay Google, on average, when someone clicks on an ad). It’s like they all forget that huge growth in mobile will, at first, drive down the cost per click. But Larry Page seems quite confident that mobile clicks will inevitably be even more valuable than desktop clicks.
If he’s right, I wonder how high Google can climb. If Andreessen is right about the next 3 billion Android users coming online, I wonder how high Google can climb. I don’t think this ride is over yet. I’m keeping my seat belt on.