Google continues to defy the faltering global economy with a strong Q2 & the launch of its new Nexus 7 tablet

Despite a faltering global economy Google had yet another strong quarter which saw the company’s profits rise 11% and its consolidated revenues jump 35%. Google’s success looks set to continue with the launch of its Nexus 7 tablet which has received excellent reviews and is flying off the shelves.

Google’s stock looks a little overbought in the short-term, however any pull back would likely represent a decent buying opportunity and as a result Google is now on the 247Bull watch list.

Defying reality

In October 2008, just days after the US government stepped in to rescue mortgage lenders Fannie Mae and Freddie Mac, and Lehman Brothers filed for Chapter 11 bankruptcy, Google reported a strong increase in sales and a 26% rise in profits.

Google continues to defy reality even today. Despite a rapidly slowing global economy, on 19 July the world’s leading search engine reported consolidated revenues of $12.2 billion for the second quarter of 2012, an increase of 35% compared to the second quarter of 2011.

Google’s CEO, Larry Page, said, “Google standalone had a strong quarter with 21% year-on-year revenue growth, and we launched a bunch of exciting new products at I/O – in particular the Nexus 7 tablet, which has received rave reviews”.

The Nexus 7 is a 7-inch tablet designed by Google and manufactured by Taiwan’s Asus. The device, which was announced at Google’s I/O developer’s conference in San Francisco, features Google’s Android 4.1 Jelly Bean operating system, a Quad-core Nvidia Tegra 3 CPU, and an 8-9 hour battery life.

Rather than going head-to-head with Apple’s iPad, Google opted for a smaller and considerably cheaper device. The cheapest iPad, which has a 9.7-inch screen, starts at £399, while the Nexus 7 is available from the Google Play store from just £160.

The world’s biggest-selling gadget magazine, Stuff, gave the Nexus 7 five stars saying that it’s, “Too small to slay the iPad, but every other 7in tablet might as well give up – the Nexus is king.”

A 1 year chart of Google

A 1 year chart of Google

Source: StockCharts.com

The Google economy

In the excellent book What Would Google Do?, the author, Jeff Jarvis, attempts to reverse-engineer Google’s business model so that other businesses can understand what it takes to be successful in the new age of the internet.

Some of the lessons and laws that Jarvis reveals include the advice that you need to be a platform and help people build things on top of you. You need to start with incomplete solutions and let your customers tell you how to improve them. You need to listen really well and build a new relationship with you customers. You need to understand that your worst customer may be your best friend.

It is by applying these lessons (and the others explored in the book) that Google has become the fastest growing company in the history of the world.

Google also recognises that the mass market is over, and that the new economy is one which is made up of niches. It therefore provides its customers with tools that empower them, and allow them to build their own businesses, and develop their own ideas.

“This practically unlimited supply of advertisers in a fluid marketplace appears to be a new economic model that may insulate Google from some of the dynamics of an economy built on mass and scarcity. Google has its own economy.” Jeff Jarvis.

As the digital economy evolves advertising transactions continue to shift from offline to online. This trend has contributed to Google’s rapid growth.

In the first quarter of 2012 advertising revenues made up 96% of Google’s revenues, and the company expects that its business will continue to grow. However it does recognise that its “revenue growth rate has generally declined over time, and it could do so in the future”

This admission, coupled with the company’s recent acquisition of Motorola Mobility Holdings, and its recent launch of its Nexus 7 tablet PC, likely indicates a new direction for the company which would put it in much closer competition with the likes of Apple.

Indeed, Google is expected to use the patents it has acquired with the purchase of Motorola to launch a range of smartphones that go head-to-head with Apple’s upcoming iPhone 5 – due for release on 12 September.

Buying opportunity

Since the announcement of its strong second quarter, Google’s stock price has risen more than 12%, and although the stock looks a little overbought in the short-term, any pull back likely represents a decent buying opportunity and as a result Google is now on the 247Bull watch list.

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