Google Company Analysis

Google

Executive Summary

            Google is one of the most successful technology companies around the globe. Initially, the company started as a software company. However, this has changed as it also produces hardware products. Generally, the internal environment of the company is good as it has shown great performances in the recent past. The major competitors of the company include, among others, Microsoft, Amazon, Apple Inc., and Yahoo. The macro environment of the company is full of competition and rules governing its operations. Google has much strength including strong financial performance, recognized brand, strong marketing strategies, and a large portfolio of products and services. Nonetheless, it also has weaknesses such as its recently acquired Motorola mobility realizing losses. Such weaknesses can be dealt with through pursuing other opportunities on the market including investing more in research and development to ensure its success. The major threat to the company is the competition posed by other companies operating in the industry. The company’s financial performance and strategic performance have been increasing for the past five years. Google’s management needs to reach out to customers as well as invest more in research and development to be able to maintain its position on the market.

Industry and Company Analysis

Industry in Which the Company Operates

            Google operates in the computer software industry as well as telecoms equipment. The company develops software and telecom products that are normally used by different companies and individuals and organizations around the globe. For instance, it develops an Android operating system used by various phone companies. It is also developing mobile phone products used by many users in the world (Levy, 2011).

Company Background/ History

            Google is an American international company that deals with the provision of products and services relating to the internet. For instance, the company provides internet search services, advertising technologies, software development, and cloud computing. The company was founded in the year 1996 by Sergey Brin and Larry Page. However, it was until the year 1998 that the company was incorporated as a privately owned corporation. The company has ever since realized rapid growth to the extent that it is threatening the market share of giant companies such as Microsoft and Apple Inc. The company has been able to achieve success through a series of acquisitions as well as partnerships with other companies. Currently, the company is viewed as a core internet search engine in the entire world. Initially, the company was operating as a software company. However, this has changed as the recent years have seen it embark on the road to incorporate hardware development. For example, the company has been able to develop its Nexus phones to enhance market share in the same. It has also recently acquired Motorola mobility to be able to achieve a competitive edge (Sutherland, 2012).

 Google’s Environment

As mentioned above, Google has been able to achieve great success of the last few years. This can be attributed to having a strong workforce starting with the management and all employees. The company is also one of the most secretive firms around the nations along with others such as Apple Inc. Many of its competitors could do anything just to learn its secrets. Nonetheless, in the meantime, this remains a misery to many including its employees. The company also invests a substantial amount of money in research and development to improve on its competitive edge (Sutherland, 2012).

Google’s Competitors

The company faces competition from different companies. This includes Apple Inc., Microsoft, Amazon, Facebook, Twitter, Mozilla, Cisco, Yahoo, and Nokia. Other competitors include companies such as Samsung, LG, and IBM. All the above mentioned companies are committed to taking up its market share. Essentially, the company faces stiff competition in the production of both software and hardware hence the need for its management to be extra vigilant in devising competitive strategy (Sutherland, 2012).

The Macro Environment

The macro environment of the company is made up customers, suppliers, governments, and competitors among others. As discussed above, the company faces stiff competition in the industry. It must also adhere to the rules and regulations enacted by different governments. The company also has to deal with the ever changing customers’ need. This is one of the reasons to why it is committed to research and development as this is the only way it can be able to ensure continuous improvement. Consequently, Google has to compete for few resources on the market (Sutherland, 2012).

Company Performance

SWOT Analysis        

Strengths

            The company remains a leader among search engine companies. Currently, the company control over 83.7 percent of the search market. The company also employs effective marketing strategies as compared to most of the companies in the industry. This is a strategy that has enabled it to win more customers on a daily basis. The introduction of android has also boosted the performance of the company considering the fact that more than 52 percent of Smartphones around the globe use it their operating system (Levy, 2011).

YouTube is also one of the company’s major strengths as many people use the software to stream videos. Google has also over the last few years realized growth in its revenues. The acquisition of Motorola mobility has improved its revenues in a tremendous way. Google’s international presence is also one of its major strengths. Generally, the company has a large global presence. The company has also been able to develop numerous applications. This has been achieved through its great utilization of its highly skilled developers (Sutherland, 2012).

Weaknesses

The acquisition of Motorola mobility was a great boost to the company’s hardware development. However, this is also a weakness as the company has recently reported millions of losses. This implies that Google has to absorb the losses to ensure the survival of the newly acquired Motorola. The company also seems to be losing market share in relation to map services especially in China. This is due to the competition launched by Apple Inc. Its dependence on Microsoft with regards to desktop operating systems is also a weakness. Microsoft controls more than 90 percent of the OS market, hence the need for Google to counter the same to ensure its continued success (Levy, 2011).

Opportunities

            Developing countries provide many opportunities for the company. For instance, the total number of paid clicks has been increasing in such countries. The trend is expected to increase even further in the near future. The Smartphone market has also shown great improvement in the last few years. This also provides a great opportunity for the company as it can further its involvement is hardware development. The company can also improve its application development for use in this market (Levy, 2011).

Google has also over the last few years realized an increase in its revenue. More revenue makes it easy for the company to acquire more partners, for instance, Twitter to improve its competitive edge. This is also a strategy that can enable the company to boost its profits even further. The cable industry also provides a great opportunity for the company. Just recently, the company announced its intention to enter this industry. Basically, the company needs to invest more in fiber optic network to be able to increase its market share (Levy, 2011).

The company can also improve its performance as well as market share by providing more Google Books. This is the only way it will be able to compete effectively with companies such as Amazon. Social networking also provides a great opportunity for the company considering the fact that many people are now using them (Sutherland, 2012).

Threats

            The major threat faced by the company is the competition posed by other companies in the industry. Apple Inc., Microsoft, Facebook, and IBM provide stiff competition to the company. The four companies threaten the market share of Google in both is software and hardware industry. Facebook has reduced the amount of time people spend on the internet searching for other things. This is one of the reasons to why Google needs to improve its Google+ to protect its market share. Apple Inc. is committed to ensuring that Google’s Smartphones does not take its market share. The company needs to come up with more sophisticated technologies to counter the strategies employed by Apple. Microsoft on the other still remains a leader in the development of operating systems. Google needs to come up with its own OS to be used on desktops to be able to compete effectively with Microsoft. Finally, IBM’s Watson might in the future kill Google search. The management of the company needs to be extra vigilant when addressing this issue as its market share continues to drop in small bits (Sutherland, 2012).

Financial Indicator Trends over the Last Five Years

            Google has been growing at a faster rate over the last five years. For instance, its income has been increasing at an average rate of 22.52 percent since the year 2008. On the other hand its revenue has been increasing at an average rate of 23.57 percent. The company realized more growth in its revenue in 2012 as compared to previous years. For instance, its revenues grew at a rate of 37 percent. Nonetheless, the company’s income has reduced since the year 2010. For example, its income grew at 29 percent in 2010 but dropped to 26 percent and 20 percent in 2011 and 2012 respectively (Sutherland, 2012).

Financial Ratio Trends

Google’s current ratio has reduced has been reducing since the year 2008. For instance, it’s current ratio in 2008 was 8.8 percent compared to 4.2 percent in 2012. The company was able to increase the same in 2009 when its current ratio stood at 10.6 percent. Its acid ratio also continues to reduce. The company was able to realize 8.0 percent and 4.0 percent in 2008 and 2012 respectively. Cash flow PS has been increasing, that is, 18.2 percent and 41.5 percent and 41.5 percent in 2008 and 2012 respectively. Free cash flow, on the other hand, has been decreasing over the last five years. Debt ratio and book value per share have also been increasing since the year 2008. The net profit margin has been fluctuating from one year to another. Graph 1 shows the summery of the company’s rate of return. Nonetheless, the company realized the highest margin in 2010 when the rate was at 29.0 percent. Table 1 in the appendix shows a summery of the companies financial performance since 2003. (Sutherland, 2012).

Strategic Performance Trends

The strategic performance of the company has been realizing an upward trend for the last five years. This can be attributed to the strategies the company has employed to ensure its success. For instance, the Google has engaged itself in developing strategic alliances and acquisitions to enhance its competitive edge. Additionally, the company has also increased its product portfolio to be able to serve a wider market, hence increase in its market share (Levy, 2011).

Issues and Recommendations

Key Strategic Issue

Generally, Google is in a better position to perform better in the near future. However, the competition the company has been facing in the recent past threatens its ability to maintain its position on the market. The losses being incurred by its newly acquired Motorola Mobility also threaten the success of the company.

Course of Action

It is imperative for the management of the company to come up with strong strategies that will counter those employed by its competitors. For instance, the company needs to invest more in research and development to be able to come up with more advanced products and services. This will also enable the company to come up with a new line of products. The company also needs to ensure reach out to its customers to ascertain their needs. This can be achieved through engaging them on social networks or carrying out surveys. This will enable the company to maintain high levels of customer satisfaction.

Implementation Plan

            The company will first need to undertake a research to ascertain the strategies employed by its competitors as well as the reasons for the losses. This will give the management to have a clear understanding on the issues that are facing the company before developing strategies to deal with them. The management then needs to enlist the aid of all stakeholders to be able to come up with choices and options on the way forward. Finally, after the engagement with stakeholders, the management will then decide on the best course of action to ensure its continued success. The implementation of the strategies should be quick as any delays will affect the company in a negative way.

Social Responsibility and Ethical Consideration

The company needs to ensure it embraces CSR to be able to avoid issues with the government and the society at large. For example, it needs to ensure its products are not harmful to the society. It also needs to ensure its software do harm computers and mobile phones.

References

Levy, S. (2011). In The Plex: How Google Thinks, Works, and Shapes Our Lives. New York, NY: Simon and Schuster.

Sutherland, A. (2012). The story of Google. New York, NY: Rosen Central.

Appendix

Table 1

Financial performance of Google

2003-12 2004-12 2005-12 2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 2012-12 TTM
Revenue USD Mil 1,466 3,189 6,139 10,605 16,594 21,796 23,651 29,321 37,905 50,175 50,175
Gross Margin % 57.3 54.3 58.1 60.2 59.9 60.4 62.6 64.5 65.2 58.9 58.9
Operating Income USD Mil 342 640 2,017 3,550 5,084 6,632 8,312 10,381 11,742 12,760 12,760
Operating Margin % 23.4 20.1 32.9 33.5 30.6 30.4 35.1 35.4 31.0 25.4 25.4
Net Income USD Mil 106 399 1,465 3,077 4,204 4,227 6,520 8,505 9,737 10,737 10,737
Earnings Per Share USD 0.41 1.46 5.02 9.94 13.29 13.31 20.41 26.31 29.76 32.31 32.31
Dividends USD
Payout Ratio %
Shares Mil 257 273 292 310 316 318 319 323 327 323 323
Book Value Per Share USD 10.71 31.87 55.66 72.53 89.72 113.30 143.92 179.52 217.33 217.54
Operating Cash Flow USD Mil 395 977 2,459 3,581 5,775 7,853 9,316 11,081 14,565 16,619 16,619
Cap Spending USD Mil -177 -319 -838 -1,903 -2,403 -2,358 -810 -4,018 -3,438 -3,273 -3,273
Free Cash Flow USD Mil 219 658 1,621 1,678 3,373 5,494 8,506 7,063 11,127 13,346 13,346
Free Cash Flow Per Share USD 2.41 5.64 5.46 10.67 17.30 26.63 21.85 34.10 41.35
Working Capital USD Mil 325 2,353 8,256 11,735 15,254 17,876 26,419 31,566 43,845 46,117

Key Ratios

Margins % of Sales 2003-12 2004-12 2005-12 2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 2012-12 TTM
Revenue 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
COGS 42.69 45.71 41.89 39.84 40.07 39.56 37.39 35.53 34.79 41.12 41.12
Gross Margin 57.31 54.29 58.11 60.16 59.93 60.44 62.61 64.47 65.21 58.88 58.88
SG&A 27.72 20.84 15.90 15.10 16.52 17.20 15.44 16.24 19.29 19.91 19.91
R&D 6.22 7.07 7.88 11.59 12.78 12.82 12.02 12.83 13.62 13.54 13.54
Other 6.30 1.47 1.32
Operating Margin 23.36 20.07 32.86 33.48 30.64 30.43 35.15 35.40 30.98 25.43 25.43
Net Int Inc & Other 0.29 0.31 2.03 4.35 3.55 -3.57 0.29 1.42 1.54 1.25 1.25
EBT Margin 23.65 20.39 34.89 37.82 34.19 26.86 35.44 36.82 32.52 26.68 26.68
Profitability 2003-12 2004-12 2005-12 2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 2012-12 TTM
Tax Rate % 69.52 38.62 31.58 23.28 25.91 27.79 22.20 21.22 21.00 19.41 19.41
Net Margin % 7.21 12.51 23.87 29.02 25.33 19.39 27.57 29.01 25.69 21.40 21.40
Asset Turnover (Average) 2.53 1.52 0.90 0.74 0.76 0.76 0.65 0.60 0.58 0.60 0.60
Return on Assets % 18.24 19.07 21.57 21.41 19.19 14.80 18.05 17.30 14.93 12.91 12.91
Financial Leverage (Average) 1.60 1.13 1.09 1.08 1.12 1.13 1.12 1.25 1.25 1.31 1.31
Return on Equity % 31.35 22.98 23.73 23.26 21.16 16.60 20.30 20.68 18.66 16.54 16.54
Return on Invested Capital % 30.56 22.94 23.73 23.26 21.16 16.60 20.30 19.07 16.85 15.29 15.29
Interest Coverage 213.52 160.36

Graph 1

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