Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) co-founder and CEO Larry Page talked about the company’s and their vision for its future in the latest Founder’s Letter to shareholders. Bernstein Research analyst Carlos Kirjner analyzes the letter to figure out its implications. Bernstein has an Outperform rating on the stock with $700 price target. Page starts by telling shareholders, “Information is Google’s core.”
By definition, Google is a ‘computer sciences’ company
Many investors ask why Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) engages in a wide range of business and projects in apparently disparate areas such as digital advertising, web apps, mobile operating system, digital content sales, cloud services, driverless cars, Project Loom, wearable technology and many others. If you think of the Mountain View-based company as a digital advertising firm, it is almost impossible to reconcile all these activities. Larry Page’s definition of Google’s core indicates that Google is a “computer sciences” company that uses computers to process information and make it more useful. This view justifies why the company entered all those businesses. All of them involve computer sciences.
Larry Page goes on to talk about search. Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) is working to transform search from an unsophisticated utility providing links to “providing answers to questions.” For instance, if you Google “How many calories in a pancake?”, the search engine displays the answer as a card based on USDA data that reads “64 calories” besides links to relevant sites.
Google’s ad revenue to keep growing at double-digit rate for a long time
Google Inc. (NASDAQ:GOOGL) (NASDAQ:GOOG) enables its computers to understand information in a deeper way to provide better search and discoveries to users. Google Now does this by using all information the company may have about a user. Bernstein says that investors underestimate the initiatives like Knowledge Graph and Google Now and their implications. Wall Street assumes that search is mature. That’s because investors rarely discuss how search is really done computationally, how much it can be improved and the infrastructure required to deliver search results. Instead, they focus on PLAs, CPCs and other issues that are important only in the near and mid-term. In terms of significance, these things aren’t even close to what Google is trying to achieve with Knowledge Graph.
Carlos Kirjner believes that Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) will take about 2-4 years to learn how to extract information from the user data it already has to understand their needs and preferences, and expand its Knowledge Graph. And then we will see significant improvement in search and discovery, leading to more use cases. It suggests that the search use and ad revenues will keep growing at double-digit pace for a long time.
Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG)’s class-A shares inched up 1.19% to $545.23 at 10:29 AM EDT on Tuesday.
