Should I Buy Google Stock? 3 Pros, 3 Cons

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When Google (GOOG) got its start in the late 1990s, there was much skepticism. People wondered how a company could survive on just the search business. Shouldn't it be a portal instead?

Clearly, Google proved everyone wrong. In fact, many portals eventually went away — like Excite and Lycos — or would go on to struggle, like AOL (AOL) and Yahoo! (YHOO).

Search actually turned out to be a huge money maker, as seen with the massive move in Google stock. Since its IPO in 2004, the shares are up nearly 10 times.

As for the current year, however, Google stock has been under pressure, down -2%. So, should investors jump into the stock before it races higher, or is there cause for concern? Here’s a look at the pros and cons for GOOG stock:

Google Stock Pros

Mobile: Google stock should continue to get a strong lift from mobile. Over the years, the company has made savvy bets on innovations like Android, AdMob and apps like Google Maps. Keep in mind that mobile is likely to provide much higher monetization than the desktop search business. After all, a smartphone is something that is personal to each person — it's not shared. This means it is easier to understand user behavior, which allows for more targeted ads.

Video: Video should be another strong driver for Google stock. Of course, the marque asset is YouTube, which is the world’s dominant video-sharing platform, with more than 1 billion users. YouTube also caterers to a valuable demographic for advertisers: viewers between the ages of 18 to 35. While traditional advertisers have been slow to move brand campaigns to digital formats, it seems inevitable that this will change — all in favor of GOOG stock.

Financials: There is little to argue here. Revenues continue to grow at a nice pace, up about 19% to $15.4 billion in the latest quarter. Cash flow also remains solid, coming to $4.39 billion in Q1. In all, the company has $59.38 billion in the bank. And the valuation of Google stock is fair, with the price-to-earnings ratio is 28. In comparison, Facebook (FB) has a staggering multiple of 82.

Google Stock Cons

Hardware: Very few companies have mastered both software and hardware … the prime example being Apple (AAPL). But Apple has had decades to work on its strategy, and there were many blunders along the way. While Google is top-notch with software, the move into hardware has been mostly a bust. For example, Glass has not made much of an impact (except for lots of bad PR and jokes), and the Nexus phone is bit player in the mobile market. But perhaps the biggest example of Google's hardware failure was the acquisition of Motorola, which it ended up selling to Lenovo.

Bandwidth: Google has an extremely strong culture of innovation and risk-taking. This is why the company has been able to benefit from trends like mobile, while others — such as Microsoft (MSFT) — have lagged in that arena. If anything, the innovation in the company’s DNA has been a key driver of Google stock over the years. But innovation is far from perfect, and necessarily means risk. Investors never know when that might come back to hurt GOOG stock.

Social: In its early days, Google didn’t care about having users register. Anybody could come to the site and search. That strategy boosted growth because it meant little friction. But there was a downside to this: Google missed out on the social revolution. True, the company set up its own social network, called G+. However, it has remained mostly a ghost down. The social business is too big to ignore, and Google will likely need to be a player in the market if it wants to keep up the growth rate. Ultimately, this may mean that it will need to make a mega acquisition, for a company on the scale of Twitter (TWTR) or SnapChat.

Verdict on GOOG Stock

Again, Google has had its missteps. Its forays into hardware and social networking have been failures. But hey, Google has a tremendously innovative workforce — and huge amounts of cash. So the company could still find ways to prevail.

Besides, Google already has enviable positions in must-win markets like mobile and video. These will provide lots of fuel for growth. The company should also be able to leverage the core technologies in new markets like wearables and the Internet of Things.

True, Google has many projects in the works and the company could easily get distracted. But the good news is that it has been able to find ways to manage its operations throughout the years. Investors can reasonably expect that to continue.

So should you buy GOOG stock? Yes — for investors who want to get exposure to mega markets, the company is a good bet.

Get more of my take on GOOG stock here.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.