Google Is Becoming Dominant

Google  is becoming increasingly dominant. The company is now the leader of not only search, but also online video and mobile operating systems. Google's oversized market share in these categories puts it in pole position to grow its top and bottom line consistently in the future, and it is trading at reasonable valuations as well.  

Strong numbers
Last quarter, Google's top line revenue increased 12% year-over-year to $14.9 billion. Google's operating income in the last quarter stood at $3.44 billion, which represents an operating margin of 23.1%. Net income stood at $2.97 billion, which points to a net income margin of 20%. Google's earnings per share stood at $8.75, which is a year-over-year increase of 34%. 

Based on this fantastic growth in revenue and earnings, Google is near all-time highs. The company's cash hoard surged to $56.62 billion at the end of last quarter. Google's revenue base remains well-diversified, with International revenue now making up 55% of total revenue. As of November, Google's search engine market share in the U.S. is stable at roughly 66.7%, according to comScore.

Motorola is still a drag on Google's bottom line because the company had a $248 million segment operating loss, and Motorola's revenue declined 36% year-over-year to $1.14 billion in the last quarter. 

Google's advertising revenue growth is firmly in place, but the company is selling ads at a lower price. It continues to sell more ads across its various properties, as well as the properties of its other networks. Paid clicks in the last quarter increased 26% year-over-year, but the cost per click trickled down by 8%. Management cited the decline in price per ad to a number of factors, including geographic mix and channel mix, as the company is selling a lot of ads on mobile devices. 

Advertising revenue growth in place
Driven by heavy growth in advertising, Google revenue from its various sites increased 22% to $9.4 billion in the last quarter. In addition, Google's revenue from hardware devices and the Play Store increased 85% year-over-year to $1.23 billion. 

Mobile ads have been a huge success for the company. On average, Google ads on mobile drive more than 40 million phone calls to businesses each month, and drive a lot of store traffic as well. Google's launch of enhanced campaigns on AdWords has provided a seamless experience to marketers looking to build advertising campaigns across various Google properties. A better experience should lead to more ad dollars flowing into other Google assets. 

Google's video-streaming site, YouTube, has a phenomenal position with more than 40% of the website's traffic coming from mobile devices. Management stated that YouTube is rapidly becoming a favorite among big name brand advertisers looking to launch large-scale advertising campaigns. As YouTube has more than 1 billion active monthly users, its video advertising potential remains gigantic.

YouTube is estimated to bring in gross revenue of approximately $5.6 billion, and take home $1.96 billion in revenue in 2013, according to eMarketer. Those are staggering numbers for Google, considering the fact that almost all of the content on YouTube is user-generated. YouTube's market share is estimated to be 20.5% of the U.S. video market, according to eMarketer.

Android's market position is phenomenal 
Android dominates the mobile OS space, as more than 1 billion devices have been activated so far, and more than 1.5 million devices are being activated daily. Largely fueled by Android's worldwide success, Google's Play Store has been gaining tremendous momentum in getting more users, downloads, and most importantly, gaining more revenue.

Android's market share in mobile OS surged past the 80% mark, and Apple's  market share fell to only 12.9% at the end of Q3, according to IDC. However, Apple had a number of big wins recently, including very successful launches of its iPhone 5s and a deal with China Mobile, both of which should help the iPhone manufacturer gain some ground and capture market share from smaller players like Microsoft and Blackberry

Google's Android OS has been instrumental in helping the company's search position on mobile devices. Going forward, Google's mobile advertising revenue is likely to increase even further. OEMs like Samsung have utilized the open-source Android platform to gain very strong market positions. In the last quarter, Samsung alone accounted for 39.9% of all Android shipments, according to IDC. 

Going forward
In addition to Google's core strengths and market-leading positions in search, mobile OS, and online video, the company has a number of moonshots in the making. Google's investments in R&D and futuristic products like Glass, Google Fiber, and self-driving cars might bear fruit for the company down the road. As more advertising budgets move online, Google is perfectly positioned to capitalize on this secular trend and provide search ads, display ads, and video ads across a number of channels on its various Internet properties.

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Ishfaque Faruk has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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