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Topic: Growth Stocks

Tech stocks: Google's push into social networking adds to its search engine dominance

Tech Stocks: Google Media Image

Tech stocks continue to make headlines. Often, this is due to the competitive race to get new products on the market. Sometimes, it is due to the spectacular rise—or spectacular fall—of a tech stock’s share price. But successful investors look beyond the headlines, to a company’s measurable strengths and weaknesses, to judge its long-term prospects, as we do today with one of the best-known names in the industry.

GOOGLE INC. (Nasdaq symbol GOOG; investor.google.com) is the world’s leading Internet search engine. The search service is free, but it provides a platform for Google to sell ads on its websites. Ads account for 96% of its total revenue.

Google continues to hire new employees as it builds up its non-search operations, including its Google+ social-networking site. Google+ now has 90 million users, up from 40 million in October 2011.

Even with these extra expenses, Google’s earnings in the three months ended December 31, 2011 rose 9.7%, to $3.1 billion from $2.85 billion a year earlier. Earnings per share rose 8.6%, to $9.50 from $8.75, on more shares outstanding. These figures exclude unusual items, mainly stock options paid to employees.

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Tech stocks: Advertisers get more clicks on Google ads, but pay less

Revenue in the quarter rose 25.4%, to $10.6 billion from $8.4 billion. Google charges advertisers every time a user clicks on one of their ads. In the latest quarter, paid clicks rose 34%. However, the average cost advertisers pay per click fell 8%.

The company spends 13% of its revenue on research, so it’s more profitable than it seems. Moreover, Google holds cash and investments of $44.6 billion, or $137.78 a share.

In the latest edition of Wall Street Stock Forecaster, we examine Google’s ability to sustain its leading position in the ever-changing Internet search engine industry. We also look at the recent surge from Apple (symbol AAPL on New York), another stock we cover in Wall Street Stock Forecaster. We conclude with our clear buy-hold-sell advice on both stocks.

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