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Google searching for profitable new lines of business

Its stock dropped 4% last year after doubling in 2009. Also, Columbia Acorn International has been a steady performer but is likely to be more volatile than some other foreign funds.

January 16, 2011|By Andrew Leckey

Question: Will Google Inc. stock do well in the future?

Answer: The company whose name has become a synonym for search still derives most of its earnings from selling ads against Internet search results.

Its success depends on its ability not only to fend off competition in that core business but also to introduce profitable new lines of business. It is a stretch to expect from Google the same dramatic results it has enjoyed in its primary business.

Some signposts in the competitive landscape:

• Facebook surpassed Google in 2010 as the most visited U.S. website, a title the search giant held in 2008 and 2009, according to Experian Hitwise.

• Google's Android smart-phone operating system has surged in popularity, with 26% of the market in the three months that ended in November, behind Research in Motion's BlackBerry and slightly ahead of Apple Inc.'s iPhone, according to ComScore Inc.

• Manufacturers are expected in the months ahead to start delivering tablet computers running Google's new Android 3.0, in a challenge to Apple's iPad.

• Notebook computers built on Google's Chrome OS are due to hit the market in the second half of this year.

The Mountain View, Calif., company has many positives: a brand strength that encourages customers to try new products, an outstanding technical staff and strong prospects for the online ad market.

Google earned $2.2 billion in the third quarter of 2010, up 32% from a year earlier. Revenue rose 23% to $7.3 billion.

The company holds an enormous cash stockpile — $11 billion last fall — that lets it be aggressive in acquiring technologies and hiring staffers.

Its share price dropped 4% last year after doubling in 2009.

The average analyst rating on Google is a "buy," consisting of 16 "strong buys," 18 "buys," three "holds" and two "underperforms."

Question: What is your opinion of Columbia Acorn International fund?

Answer: This international-stock fund has been a steady performer. But because it focuses on small and mid-size companies, it is likely to be more volatile than a foreign fund that invests mostly in blue-chip firms.

Columbia Acorn International's Class Z shares posted a total return of 20% in the last 12 months, above average for global small- and mid-cap growth funds. Its three-year annualized return of 2.4% is in the top one-fifth of its peers.

The fund's managers "have been solid in their stock picking, with a patient, long-term orientation," Morningstar analyst Kevin McDevitt said. But he said the portfolio should "be considered more of a complementary than a core holding for an individual."

There is no sales charge on purchases of the fund's Class Z shares, which require a $2,500 minimum initial investment. The return received by Class Z shareholders reflects an annual expense ratio of 0.99% of assets.

Andrew Leckey answers questions only through the column. E-mail him at yourmoney@tribune.com.

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