Google Up 13% on Great Earnings and Google +: Is Facebook in Trouble?
Dividend-paying equities backed by solid businesses will prove their value and build wealth over time, whatever comes out of leftfield.
— Roger Conrad, Utility Forecaster
On June 24, Berkshire Hathaway acquired the 1.4 million shares (19.9 percent) of Wesco Financial it didn’t already own for $385 per share. Wesco’s CEO was 87-year-old Charlie Munger, who is also vice-chairman of Berkshire. Munger is getting on in years and probably didn’t want the workload associated with being a CEO, so Warren Buffett helped out his old friend by absorbing the company.
Charlie Munger and Warren Buffett Love Google
In his final meeting with Wesco shareholders on July 1, Munger was asked whether he thinks current technology leaders Google (NasdaqGS: GOOG), Intel (NasdaqGS: INTC), and Apple (NasdaqGS: AAPL) face competitive threats. Munger’s answer was enlightening:
I don’t know how you displace Google, but a lot of the other companies will have competitive troubles.
That’s right, folks, forget about Apple and Intel — only Google has the sustainable competitive advantage that Munger and Buffett look for in a long-term investment. This was not the first time that Munger had spoken positively about Google. Back in May 2009 at the Berkshire Hathaway annual meeting, Munger said the following:
Google has a huge new moat. In fact I’ve probably never seen such a wide moat. Their moat is filled with sharks and I don’t know how you to take it away from them.
Google’s Earnings Are Great
Google’s closing price on July 1st was $521.03. If you had acted on Munger’s bullish statement and bought Google stock that Friday afternoon, you would be a very happy camper today because the stock is now trading for close to $600!
The reason for the big price jump has to do with Google’s second-quarter earnings report, which was released after the market closed this past Thursday (July 14th). It was a barn-burner, with the company blowing away analyst estimates and reporting more than $9 billion in quarterly revenue – a record high. Revenues grew 32% and earnings grew 36%. To paraphrase Mark Twain, the reports of Google’s death are greatly exaggerated.
Google + Social Network is a Huge Growth Opportunity
Google’s current earnings power from its paid-search franchise (81% market share) is awesome, but I think at least part of investor enthusiasm revolves around Google’s non-search growth opportunities – namely, its mobile operating system Android and its new social networking platform called Google +. I’ve talked about Android as an iPhone killer and as a RIMM killer, so I’ll focus on Google +.
Google + is still in beta and is invitation only. Despite this obvious growth limitation, I was amazed to hear Google CEO Larry Page say on the post-earning conference call:
Over 10 million people have joined Google+. That’s a great achievement for the team. There’s also a ton of activity, and we are seeing over 1 billion items shared and received in a single day. Our +1 button is already all over the web, and it’s being served 2.3 billion times a day. So while we still have a lot of work still to do, we are really excited about our progress with Google+.
Wow. And this is just the beginning. Venture capitalist and Idealab founder Bill Gross (not PIMCO’s Bill Gross) recently predicted that Google + will reach 100 million users “faster than any other service in history.” It’s not just consumer users like you and me finding Google + irresistible; it’s also corporations like Dell (NasdaqGS: DELL) that are incorporating the Google + “hangout” feature into their customer service platforms.
Why Google + is Better than Facebook
What makes Google + superior to Facebook? It has to do with something called privacy. Facebook doesn’t give your personal information any privacy protection whereas privacy protection is at the very core of what Google + does. This difference is the main reason why Facebook may be in trouble. As one observer puts it:
If you post something in your status on Facebook, it basically sends it to all your friends. Instead of treating all of your friends as equals, Google lets you put them into different groups, called circles, such as “friends”, “acquaintances”, “family”, “sports fans”, and so on.
These circles represent a powerful innovation. They allow us to send more personal updates just to our closest friends instead of forcing us to share with all of our hundreds of acquaintances. This simple task is not easy to do within Facebook. Furthermore, Google+ allows us to chop up our incoming news stream based on what circle they are coming from, so that we can focus on just the updates from our family or just the updates from our coworkers.
The Google+ circles concept is powerful and easy to use. It represents the defining, foundational difference between Google´s and Facebook´s vision for social networking. If this new model takes off with users, then Facebook will find itself in the uncomfortable position of having to replicate these features within its own platform. Unfortunately for Facebook, moving to this new paradigm will not be possible overnight. We are talking about a major architectural overhaul. In the meantime, Google will have a chance to attract significant numbers of users and influence.
Facebook is Scared of Google +
Facebook founder Mark Zuckerberg is running scared. He has hired a public relations firm not once, but twice, to badmouth Google. Facebook is also blocking a Google Chrome app from exporting Facebook friends into Google +. And Zuckerberg himself joined Google + and temporarily blocked his user info from being seen by other Google + members, only to reverse course within the week and blame the blockage on a Google technology glitch.
I was keen to invest in the Facebook IPO when it comes out, but now I’m not so sure. Perhaps I should just buy Google.
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Google may be a good investment, but it doesn’t pay a dividend. Roger Conrad, editor of Utility Forecaster, has over 25 years experience finding the best dividend-paying stocks in “essential services” such as electricity, water, natural gas, and telecommunications.
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