It's easy to forget that, ultimately, Google (GOOG) is an advertising company. The $382 billion tech firm might have its hand in a wide spectrum of different businesses ranging from searches to smartphones, but at the end of the day, the firm's goal is to get more eyes on the paid ads that contribute around 80% of Google's total sales. It's been a slow start to the year for GOOG: Since the calendar flipped to January, Google has effectively traded flat.
Google currently captures approximately 60% of the world's Web search traffic, an astounding market share that gives Google some important advantages over the competition. Part of that success comes from the technology that Google has been able to deploy in a "post PC world." By giving users high quality experiences with apps and mobile devices, it's able to keep users playing within the Google sandbox, all the while serving them ads.
Desktop search remains the holy grail of Google's business. Unlike the ad networks, in which case Google must pay a royalty to content owners, sponsored search comes with huge margins and customer acquisition costs are effectively nil thanks to the strength of the Google brand. While any new investments will likely come with some level of margin dilution, high levels of profitability today and a whopping $59 billion cash and investment position help to offset the risks.
Make no mistake, Google isn't "cheap" right now -- but it's well-positioned to get even less cheap in the coming months.