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Google’s Secret Profit Weapon Is Shopping February 11, 2013

Posted by Ishmael Chibvuri in Latest Articles!!!.

Google’s (GOOG) massive fourth quarter was credited to mobile, with much of the analysts’ attention focused on YouTube’s prospects.

But Google has a secret profit weapon, and neither of those is it. It’s shopping.

In October, Google began a transition to an all-paid search model, whichwill be complete in February. CEO Larry Page pointed to shopping as a profit driver during his conference call, and data from Marin Software indicated a huge boom in product listing ads during the quarter.

While small merchants are disadvantaged by the change the new ads are"crushing" Amazon’s own search listings, and AdAge says they represented 10.7% of all paid-search ad spend during the quarter.

Not all small merchants are out in the new system, however. Etsy, which represents artists, is continuing with Google Shopping and catalog merchants are quickly learning how to use Google Shopping to not only gain customers but valuable data as well.

Investors should know this is not a one-quarter deal. Google is expanding its line to b2b ads under the name Google Shopping for Suppliers. While most analysts think the move is aimed at Amazon, I think it’s more aimed at Alibaba, the Chinese company that began in 1999 as a b2b site.

The bigger news is the company’s purchase of Channel Intelligence today for $125 million. CI has 850 clients, many of them top retail brands, and was an early launch partner on the Google Shopping ads. The buy is certain to make it much easier for large retailers and suppliers to use Google Shopping efficiently, and it’s the success of a service to the company paying the freight that matters most when you look at the long-term implications of any move like this.

The ball is now in Amazon’s (AMZN) court. The company has long been able to get to the top of Google searches using technology. Now it’s going to lose ground, and may have to pay cash to regain some of that ground. All this represents a huge win for Google and justifies an above-market multiple.

The next time there is a general market pullback, make certain that Google is on your buy list. I don’t know if a 23 multiple is right currently, but even if you come in at today’s price, with a long-term time horizon, I think your patience will be rewarded

Source: http://seekingalpha.com/article/1160671-google-s-secret-profit-weapon-is-shopping?source=email_investing_ideas&ifp=0


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