Google Inc (NASDAQ:GOOG) is one of the world’s largest tech firms, and it completely dominates search, streaming video, and online advertising, so it’s only natural to treat it as a mature company, but UBS analyst Eric J. Sheridan warns that this underestimates the company’s ability to innovate and the fact that the it may be the company best positioned to benefit from secular trends in IT.

Google to give tech platforms tougher competition

“As Google Inc (NASDAQ:GOOG) continues to innovate, we believe it will increasingly compete with broader tech platforms across a range of businesses, Sheridan writes. “A balance between innovation & shareholder expectations will be key to the Google investment story in coming years… Investors will be satisfied if Google can either maintain flattish margins while producing mid-teens revenue growth; and/or provide cash returns to shareholders. We believe both outcomes are achievable.”

Google rev by region, segment

Google dominates mobile computing, online video

The bulk of Google Inc (NASDAQ:GOOG)’s revenues come from online advertising, and more than half of revenues are sourced in the US and the UK, so it can be tempting to dismiss the company’s other efforts as a mere sideshow to the real thing, but web search is no longer the main IT battlefield. Following Apple Inc (NASDAQ:AAPL)’s lead, Microsoft Corporation (NASDAQ:MSFT) and Google are working hard to create a tech ecosystem that encompasses every tech need a person might have. While the Windows Phone is still working to establish itself as a serious contender in the mobile space, Google’s Android OS has eclipsed Apple’s iOS worldwide.

smartphone and tablet share by OS

As a source of content, Google-owned YouTube has the largest share of online video minutes in the US by an order of magnitude.

online video share

“Google Inc (NASDAQ:GOOG)’s current wave of investments is targeted toward repositioning Google from a desktop search/display advertising business to a digital platform leader,” writes Sheridan. Considering mobile computing and video streaming are two of the most important trends in the online space, it looks like that repositioning has been successful so far. Sheridan has increased his 12-month price target from $1,100 to $1,300, implying an 18% upside over the current $1,110 stock price, based largely on these trends.

Google could finally pay dividends

Google Inc (NASDAQ:GOOG) is unique in its unwillingness to pay dividends (it’s the only company on the S&P 500 (INDEXSP:.INX) with a market cap north of $200 billion that doesn’t), but it’s actually awash in cash. While Sheridan didn’t take this cash into account when setting his new price target, he notes that it represents a significant upside risk.

“If Google Inc (NASDAQ:GOOG) does not return any of this cash to shareholders, the company’s net cash balance will balloon to $144b by year-end 2017,” he writes. “Given the sheer size of the cash position, we think it is increasingly likely in coming years that Google will adopt a shareholder return policy.”

google cash on hand