June 1, 2009 - Google Inc. (GOOG-NYSE) a technology company, maintains an index of Web sites and other online content for users, advertisers, Google network members, and other content providers. Its automated search technology helps users obtain instant access to relevant information from its online index.

The company's products also comprise Google Docs, Google Calendar, Gmail, Google Groups, Google Reader, orkut, Blogger, Google Sites, and YouTube. In addition, it offers Google Toolbar, Google Chrome, Google Chrome OS, Google Pack, Picasa, and Google Desktop; and a Google GEO product line comprising Google Local Search, Google Maps, Panoramio, Google Earth, Google SketchUp, Google 3DWarehouse, and Google Building Maker.

Further, the company provides Android, a mobile software platform; Google Mobile, which are mobile-specific features; Google Checkout, an online shopping service; and Google Labs, a test bed for engineers and users. Additionally, it offers Google AdWords, an auction-based advertising program; GoogleAdSense program for content owners; and Display advertising for advertising services.

The company also has the Google Enterprise product line comprising Google Apps that provides hosted communication and collaboration tools; Google Search Appliance; Google Site Search; Google Commerce Search; Google Maps API Premier for interactive Googlemaps; and Google Earth Enterprise to visualize data in a geographiccontext. Google Inc. was founded in 1998 and is headquartered in Mountain View, California.

Here's the most amazing part about Google: it's just getting started. There isn't much this fast growing tech company isn't doing or analyzing or researching. In January, it released the Nexus One, a phone to take on Apple's iPhone. Just this past week, it filed for and received permission to be an electricity marketer, allowing the company to buy and sell bulk power like a utility. Google said it doesn't own generation facilities or transmission lines to deliver power and isn't planning to use the new authority for retail purposes. Google stated its interest in the power markets stems from a desire to manage its own energy supplies and gain better access to renewable power. The company doesn't provide information on its electricity use but operates massive networks including large data centers. A spokeswoman for the company said Google has no plans to sell its energy management service or speculate in energy markets. But she acknowledged the company isn't completely sure how it will proceed.

Ahh, there's the rub. Not sure how it will proceed. But anyone who watched this company grow, knows it will proceed and make money from this latest venture. That's what it's been doing since it went public. In fact, earnings per share have always been higher since 2003 when it made 41 cents a share. It went public in 2004 at $85 a share. Earnings per share went to $23.20 in 2009, and 36 analysts have a consensus estimate for 2010 at $27.37, then $31.41 in 2011. One analyst has the number at $34.

Quick math shows that earnings are up 5558% (41 cents to $23.20) while the stock is up "only" 537%. The problem with the math is that 41 cents a share doesn't warrant an $85 price, unless the earnings grow extremely fast. They did. Now the stock is trading at a valuation that seems low: a P/E of 26.55. But the potential growth in earnings isn't nearly as powerful as it was in 2004. Analysts see earnings at an average annual rate of 19.85% for the next 5 years. Over the last 5, the company delivered an average annual increase of 21.31%. Hard to find growth that strong in this economy.

Revenues are also strong. In the last quarter of 2009, they were up 17% compared to the final period of 2008. Much of that came from the proprietary sites Google owns. Its partner sites also showed good performances with aggregate paid clicks up about 13% with the cost per click increasing by 5%. Total revenues for the quarter were $6.674 billion, up from $5.701 billion in 2008's fourth. For the full year, 2009 had $23.650 billion compared to $21.795 billion in 2008. Analysts see $26.00 billion for 2010.

The next market Google wants to expand: mobile advertising. It just bought AdMob for $750 million in stock. AdMob is a mobile display ad technology company that will give Google's current advertisers and publishers more options. Most analysts see this as a major growth sector as mobile advertising is only beginning but shows signs of considerable
potential.

Another new development: movie rentals on YouTube. With very limited initial offerings (5), YouTube will most likely expand choices, and eventually, could persuade movie studios to rent content through YouTube with the studios setting the prices and rental viewing windows. YouTube would get a commission on each rental.

One area of concern: China. The company is in a dialogue with Chinese officials about censorship. Google no longer allows censorship of its Chinese Web site. The government doesn't like that. Worst case: Google leaves China (with Baidu waiting anxiously to help it pack bags). With so much potential in China, if Google can't resolve this problem, future earnings growth could be slowed noticably.

More numbers: Market cap is $172.35 billion. Forward P/E is 17.26. Price to book is 4.79. Book value is $113.30. Operating margin for the last 12 months was 35.15% while Profit margin was 27.57%. There's $24.48 billion in cash or $77.00 a share. There is no debt. Current ratio is 10.616. Beta is 1.11. There are 317.98 million shares outstanding. Float is 246.77 million. Insiders own 6.29%. Institutions have 77.40%. There is no dividend.

The only concern here is the Chinese predicament. Unless there's a compromise reached, it would seem Google is ready to relinquish the largest market in the world. That will hurt earnings for a while. Until the company discovers new ways to make money.

Company Web site: www.google.com

- Ted Allrich