Google stock

Mountain View has been a prime example of the long-term play

Google went public 10 years ago today. I remember it well because, at the time, I was working as an equity analyst covering the technology hardware sector on Bay Street in Toronto. When IPOs happen, the investment bankers typically are the ones who set the offer price. Google used a Dutch auction, which was controversial and meant buyers were to bid on the number of shares they'd like to buy and what price they'd be willing to pay.

Google's IPO was not deemed highly successful at the time. The Nasdaq was suffering from weakness, the first-day pop of Google shares was less dramatic than people hoped for, and it was commonly written that Google was massively overpriced.

Ten years later I think this serves as fantastic evidence of the importance of long-term thinking. Investing, to me, is not about trading for today, this week, this quarter or even this year. It's about looking at an industry dealing with huge change and buying companies with a leadership position in creating the change. Oh … and holding onto the stock for a long, long time.

Seeing the forest for the trees remains as important as ever.

Part of the reason I believe investors can earn superior returns using this strategy is because industries often change much more than we could ever have anticipated. Bill Gates said "We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10." I think he was right, and Google is an excellent example of this, along with Apple, Netflix, Priceline Group, Facebook and plenty of other growth stocks that lead their markets.

When Google went public there was no YouTube and it was practically impossible to do anything data-centric on a mobile device. There was no Android, and most people didn't expect us to move so heavily towards mobile technology. We also probably didn't think that, ten years later (today), Google would look interesting because of wearable computing or self-driving cars.

But even with all that's changed, Google is still primarily an advertising business. AdWords and Adsense are still the big drivers of revenue. They've just gotten a whole lot bigger.

In 2003, the last full year of financials prior to the IPO, Google posted $1.47 billion in revenue and $0.41 of earnings per share (fully diluted). In 2013, the company's most recent fiscal year, revenue was $59.8 billion with diluted earnings per share of $38.13. Keep in mind that Google's stock split in 2014, so the numbers I just gave you do not require any split adjustment whatsoever.

So in 10 years, Google grew the top line by 40 times, and the bottom line by 93 times. This means the company not only got a lot (a LOT) bigger, but it's profitability ratio improved dramatically. And the company is still growing, still dominates search, and still has incredible opportunities considering how many corporate advertising dollars are likely to move to online/mobile formats and away from print media.

A shift from focus on profits to growth isn't out of the question, though.

Google has spoiled investors who like to see profitable growth because it has so regularly posted such profitable growth. Contrast this with a company such as Amazon, which doesn't show much profit at all. It never really has because Jeff Bezos and his team see so much growth ahead that they would prefer to re-invest contribution profits back into the business and generate even more growth.

Given the dramatic growth of mobile (led by Android), it would not surprise me if Google's next few years resulted in more of an Amazon-style approach. In other words, Google may want to invest a lot of its growth into world domination of the OS that powers the mobile Internet. Who knows where this will lead in the next 10 years.

Just like I had no idea, back in 2004, that Google would go on to dominate video and mobile 10 years later, I don't know what the company will look like in another ten years. Instead, I simply feel confident that Google is still in a dominant position in a rapidly changing business. I want exposure to that. And I'm holding onto my Google shares.


Reader comments

Ten years of Google awesomeness as a publicly traded company


Their revenue isn't growing fast enough despite the success of Android, YouTube, and Gmail. With all of the projects they're doing, they should've been making close to at least Microsoft-level money by now.

Posted via Android Central App

Key word(s)... "long-term" It's not about how fast you can make the most, but how long you can make the most. Potential longevity is in Google's court.

Yes because MSFT is doing extremely well lately. Just wait till Google Fiber grows and then they finally offer cell phone service at reasonable rates.

Posted via Ash William's Boomstick

Yes. I know more of what's going in the world and in my little corner of the world thanks to Google.

Posted via Android Central App

Google is making the world a better place more so than any other tech company in their arena. Even stuff as simple as having the worlds best public search engine available for people to find information. People who are, or aspire to do great things. Not to mention any of their other projects and possibilities.

I think you what you are going to see is that Facebook is going to take more and more market share away from them in advertising.

Posted via the Android Central App

Yiu actually make a good point. But that's not going to hurt Google at all, and they definitely won't take enough to make a dent. But Google has branched into so much more now while Facebook keeps acquiring mainly inferior products.

Posted via Android Central App

Google makes it's money with ads. Consumers don't like ads. The cool stuff google offers doesn't make them much money, unfortunately. They had better hope the ads remain lucrative.

I know that is exactly why tv failed....oh wait...

Consumers do not like ads but they are so ingrained into our lives we have just learned to tune them out (except autoplay on videos, that just sucks). As long as there are products there will be ads. As long as google comes up with new cool stuff, they will find new ways of serving those ads.

Thanks for taking the time to state your disagreement. What part of the strategy do you disagree with, and what is your alternative view? It sounds like you have a lot to share here. I'm looking forward to your reply.

I heard around here that Sprint employees are first for termination due to the superior network they are building. You should quit my friend...