Search engine giant Google (GOOG: Charts, News, Offers) has loomed large in the headlines lately, with Larry Page finally assuming the CEO role of the company he and Sergey Brin founded and the subsequent executive shakeup aimed at streamlining communications and business operations. This week, the U.S. Justice Department also cleared the Mountain View, California-based company to acquire flight-data software company ITA, a $700 million acquisition which Google’s competitors have harshly criticized and appealed, claiming it is an anti-competitive move which will bankrupt multiple competitors and give the company an unfair advantage in travel searches. Expedia (EXPE: Charts, News, Offers), Kayak.com, Sabre Holdings, Microsoft (MSFT: Charts, News, Offers) and other companies have begun a lobbying effort against Google from their joint effort website, Fairsearch.org. The Justice Department added a few small limitations to the deal – including a requirement to establish firewall to protect customers and agreeing to allow the Justice Department to continuously monitor Google’s business practices with the collected search data. Google must also continue to develop ITA’s InstaSearch software and offer it to travel industry websites for a fair price. Despite the scrutiny surrounding the deal, this acquisition can significantly strengthen Google and richly reward patient shareholders.
Daily Chart
ITA’s fare tracking software is literally the “Google of Travel Fares,” and is the search backbone of most airline ticket sales websites. Websites such as Expedia cannot directly access the flight database, and must pay fees to ITA in exchange for these search privileges. As such, these fees will now go directly to Google, which is the primary reason competitors are crying foul. Google can also directly integrate real-time ITA search results into Google Maps and its other cloud computing applications, to be accessed on any Internet-capable device. This marginalizes the importance of any discount airfare websites, such as Expedia, Priceline (PCLN: Charts, News, Offers) or Orbitz (OWW: Charts, News, Offers), as airfare and hotel searches can be performed directly through a Google portal. Google’s existing relationships with advertisers could also easily evolve the ITA acquisition into its own branded discount travel website, with all-inclusive packages with car rentals, hotel accommodations and airfare. Considering Google owns nearly 70% of the American search market as well as majority shares in multiple key markets worldwide, this could deal a fatal blow to the entire online travel industry. Google has dismissed these sinister claims and argues that it merely acquired ITA to provide more detailed and relevant information for customers seeking to compare online ticket prices. While the U.S. has given Google its blessing, the European Union, notorious for its multi-billion settlements against American companies, has begun investigating antitrust claims against the company.
Google’s famous mantra of “Do no evil” has been questioned by many industry pundits in the wake of the ITA acquisition and Google Maps Wi-Fi fiasco. The intention of many of Google’s “free” products – such as Chrome, Chrome OS, Google Apps and Android are becoming clear – to collect users’ information, to compile it into an enormous marketable database and to sell it to advertisers, who in turn pay Google to advertise, which powers its main revenue engine – search. Obtaining the largest, most powerful travel fare search engine in the world, then charging its competitors to use it was simply another expensive moat to put around the castle. Analyst Bill Gurley stated that all these moats were intended to protect Google’s main castle – its cash cow search engine – and that “Google is also scorching the earth for 250 miles around the outside of the castle to ensure no one can approach it.”
Whatever Google’s strategy is, it is a profitable one, and most analysts expect the company to soundly beat earnings estimates when it reports fourth quarter earnings this Thursday. A streamlined company with a visionary CEO, Larry Page, at the helm could revitalize the company, whose approach under Eric Schmidt has been often labeled as “wasteful” and “chaotic,” in the same manner Steve Jobs revived a dying Apple AAPL in 1998. Google currently trades 14 times forward earnings, at a steep discount to its industry peers, which trade at an average P/E of 29.5. Bullish analysts have a target price of $800 set on the stock, and continued acquisitions to widen its moat can only help strengthen the castle – the largest and richest search engine in the world.
Other News About GOOG
Search Is Google’s Castle, Everything Else Is A Moat
Google’s strategy isn’t as chaotic as most think.
Larry Page’s report card one week in
How did the visionary CEO fare his first week on the job?
Other Stocks in the News
Research In Motion Eyes a Rebound
Can Research in Motion make a comeback?
Facebook, Baidu Reportedly To Set Up China Social Network Site
Baidu and Facebook partner up to bring social networking to China.
Copyright 2011 by Investorguide.com, Inc. Investorguide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary, and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. One WebFinance Inc. employee, other than the author of this issue, owns shares in GOOG.
The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA Investorguide.com, Inc.) or its employees responsible.
Other relevant articles you may like
Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
