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Google’s Recent Quarter Should Scare Rivals

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When search giant Google reported its results for the first quarter back in April, the company’s chief executive officer, Larry Page, introduced the report by saying that the company’s three main priorities were “velocity, execution, and focusing on the future.”

With the company having just delivered an exceptional second quarter, it is clear that not only did it hold true to its promise, but it was intent on putting its rivals on notice — namely Facebook, Microsoft, Amazon, and, most importantly, its chief adversary Apple.

The Quarter That Was

For the quarter, the company generated a net income of $2.79 billion, or $8.42 per share, on revenue of $12.21 billion — topping analysts’ estimates of $8.41 billion. Though its earnings per share fell slightly short of expectations, the number represented an increase of almost 10 percent from the previous year.

Even more remarkable is the fact that over the past five quarters, the company has averaged over 30 percent revenue growth, including 35 percent for the current quarter, while its net income climbed over 11 percent annually, continuing a string of three consecutive quarters. The company continues to demonstrate what is possible when innovation meets sound execution as its earnings per share has increased by an average of 28.1 percent dating back since last year.

During the announcement, Page offered this:

Google standalone had a strong quarter with 21 percent year-on-year revenue growth, and we launched a bunch of exciting new products at I/O — in particular the Nexus seven tablet, which has received rave reviews. This quarter is also special because Motorola is now part of the Google family, and we’re excited about the potential to build great devices for users.

These numbers were indeed impressive, especially when you factor in Motorola’s potential impact. The company has shown such exceptional growth over the past three years, in what has broadly been a poor economic climate; it is scary to think where it would have been in more robust times — particularly absent market and corporate pressures due to slower advertising expenditures.

The economy has shown considerable signs of improvement, heightening Google’s true growth potential and expectations for what it can realistically achieve over the course of the next 18 to 24 months. Remarkably, even at $615 the stock remains relatively cheap with a price-to-earnings ratio of 18.

Moving Forward

However, as good as a quarter this was for the company, I am not yet ready to proclaim that it has won anything just yet — not as long as its chief rival, Apple, remains dominant, and both Microsoft and Amazon have announced plans to launch new tablets.

Google still has some very important decisions to make if it wants to compete effectively in the tablet realm. Not least is, to what extent does it want to scare Amazon and for that matter Samsung — both of which are partners that have now become rivals?

How will these partners deal with this new rivalry? Will they both get sensitive and develop some insecurities as both Dell and Hewlett-Packarddemonstrated when Microsoft announced its plans to enter hardware? If so, should Google care?

I don’t think it should, nor should loyalty ever trump that which benefits consumers — innovation and free enterprise. Though I don’t think it will make a significant dent in the Apple’s iPad, I think Google deserves considerable credit for having made this move. If not Apple, I would think Amazon, Samsung, and, for that matter, Microsoft have a lot to be worried about.

Bottom Line

It goes without saying that for a company like Google that has a reputation for putting smiles on people’s faces, the company’s success has generated its fair share of enemies. In addition to the rivals mentioned above, let’s not forget that there are those such as Yahoo that would love nothing more than to see the company fall flat on its face — including new rival Facebook, which finds itself now competing for users with Google+.

With so many rivals, Google’s challenge remains adhering to its mission of “velocity, execution, and focusing on the future.” If it can do that, the company will remain a force to be reckoned with for many years to come as it has yet to reach its full potential. Now there’s a scary thought. ...

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—By TheStreet.com Contributor Richard Saintvilus

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Additional Views: This Is Not Your Daddy’s Google

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Disclosures:

TheStreet’s editorial policy prohibits staff editors, reporters, and analysts from holding positions in any individual stocks. At the time of publication, Richard Saintvilus was long AAPL and held no position in any of the other stocks mentioned.

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