Nathan Parsons' Blog

Most internet or technology companies think that R&D spending is key to long term success.  Google is no different, as it devoted 12% of its revenues to developing new products.  Although AdWords and AdSense make up the largest portions of its revenue, it is products like Google Docs, Google Analytics and Google Earth that have kept the company in the mainstream as far as being the number one resource on the web.  But these products do little to generate direct revenue.  It appears their strategy is to dominate the web first, and let the advertising revenue flow after.

Revenue growth has been what would be considered as unsustainably high in any other industry, but it has still been able to maintain consistant quarterly growth between 24% and 26%.  Earnings growth is following a similar pace, coming in between 21% and 31% per quarter over the past year.  So how is it going to be possible to maintain such high growth over the long term?  R&D will yield some products that will contribute directly or indirectly to revenue growth, but with almost $35 Billion in cash and short term investments, paired with no long term debt, Google must surely be fixing to make a deal that will ensure it continues to grow and dominate the web. 

With the expectation that Facebook will go public when it is required to disclose financial information in 2011, perhaps look for Google to make a similar move that Goldman Sachs made to snap up a large share of one of the fastest growing internet companies.

http://www.google.com/finance?q=NASDAQ:GOOG&fstype=ii
http://www.investors.com/Education/DailyStockAnalysis.aspx?id=562727