Google's anniversary gift: A 420% gain

The search engine titan's stock has more than quintupled since it went public in August 2004. But will Google's next five years be as successful as the past five?

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By Paul R. La Monica, CNNMoney.com editor at large

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NEW YORK (CNNMoney.com) -- Can you believe that it's already been five years since Google went public?

The search engine giant debuted on Aug. 19, 2004 at $85 a share. Today, the stock trades at about $445. That's a nearly 420% return during a time when the Nasdaq is up only 8%. And shares of top rival Yahoo! have been nearly cut in half during the past five years.

Yet, it doesn't look like all those Googleaires are too interested in celebrating their 5-year anniversary as a public company. Check out the Google (GOOG, Fortune 500) homepage and you don't see one of its usually witty cartoon renditions of the logo like you do on other "holidays."

I was hoping it would look like a tree carving or maybe a set of spoons, forks and knives since wood and silverware are the traditional five-year wedding anniversary gifts. (And yes, I Googled "wedding anniversary gifts" to find this out.)

Nonetheless, it's been an interesting five years for the search giant to say the least.

The company has used its strong stock price and mountain of cash reserves as currency to scoop up the likes of YouTube, DoubleClick and Postini to name a few.

It has watched Yahoo! (YHOO, Fortune 500) try (and fail) repeatedly to gain more market share in the lucrative world of search. It's weathered numerous challenges by Microsoft (MSFT, Fortune 500) to do the same. And it's continued to be innovative, rolling out a slew of products such as Gmail, Google Maps and Google Docs.

All the while, Google has also remained relatively focused its core search business, resisting the temptation to go overboard in the glitzy, but not all that profitable, social networking business. And that's a good thing.

News Corp. (NWS, Fortune 500)-owned MySpace and Silicon Valley darlings Facebook and Twitter have all generated a googol of hype but none has figured out a way to make gobs of money from their users as Google has.

Of course, remaining on top in a business as dynamic as technology is not easy. Online pioneer AOL, which is set to soon split from my parent company Time Warner (TWX, Fortune 500), is now a distant also ran in the world of Internet advertising. (Although it will be interesting to see if former Google sales guru Tim Armstrong, who is now running AOL, can turn that company around.)

So Google is probably too busy trying to figure out how to stay ahead of the competition to look back.

Google is facing perhaps its most significant threat yet from Microsoft now that it has launched the new search engine Bing and finally inked a search partnership with The Purple One (Yahoo!, that is, not Prince or new Minnesota Vikings quarterback Brett Favre).

According to the most recent online search rankings from comScore, Microsoft did gain ground against Google in July. But its market share of 8.9% pales in comparison to Google's whopping 64.7%. And even if you add Yahoo's market share to Microsoft's, they have a combined share of just 28.2%

Steve Weinstein, an analyst with Pacific Crest Securities, said that the Microsoft-Yahoo alliance bears watching. But he believes that Google shouldn't be that worried. In fact, he thinks Google could take advantage of any turmoil that takes place while Microsoft and Yahoo! join forces.

"Google is still in a very strong position in search and they should continue to gain market share in the U.S.," he said. The Yahoo-Bing partnership will take a couple of years to implement, so there is plenty of risk of disruption for them during that time."

Still, Google's growth has slowed in recent years. Sure, part of that is simply the so-called law of large numbers, i.e. the bigger a company gets, the more difficult it is to keep posting gaudy percentage increases in sales and earnings.

But Google has also shown that it's not immune to economic downturns. It's not a coincidence that profits were only up slightly in 2008, a year when -- stop me if you've heard this before -- the economy suffered its most severe recession since World War II.

Google's stock, while still a big winner for anyone who bought it shortly after it went public and has held onto it, is trading about 40% below its all-time jumbo jet high of about $747 from November 2007.

With all that in mind, Colin Gillis, an analyst with Brigantine Advisors, said that Google probably has to worry more about what the next big thing in online advertising will be as opposed to challenges from Microhoo or other upstarts.

"The easy money in the stock is gone," Gillis said. "Are we going to look back five to 10 years from now and say Google was a one trick pony or that it was successful in taking their search excellence and adapting it to other businesses?"

So far, Google hasn't really been able to do so. As dominant as Google has been in milking sales from contextual search links, Gills said that mobile Internet applications and online video ads have not been big sources of sales just yet. He adds that it's going to be crucial for Google to make more money off those products as well as others such as Web browser Chrome.

But Weinstein thinks that as long as the demand for online advertising doesn't collapse, Google should remain at the forefront of the business.

"There is a lot we don't know about how the online ad market will evolve. But whatever those trends are, they seem to be very favorable to Google," he said.

Talkback: Will Google still be the king of online advertising five years from now? Would you buy the stock at these levels? Add your comments below.  To top of page

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