Saturday, October 19, 2013

Google Inc. 3Q13 Earnings: Accelerated Growth Rates Across Board, Shares up ~13%, Maintain PT

Google Inc. released 3Q13 results market close on October 17th and held a corresponding conference call 4:30pm EST. Gross consolidated revenue came in at $14.9BB, up 6% qoq and 12% yoy. Non-GAAP EPS was recorded at $10.74 beating the street consensus of $10.35, and continuing its reputation for never missing street consensus in 2 consecutive quarters. The stock reacted extremely positively after the call and was up about 13.77% at market close the following day after closing at $889.2 per share before the conference call. This is a new height for Google’s shares as they have reached beyond the $1000 mark, a huge milestone for the company.
            Earnings were ahead of expectations due to profitable growth in the company’s “google” segment, which made up about 92.35% of total revenue. This segment had revenue growth of 19% yoy 5% qoq with revenues amounting to about 13.8BB. The success is attributable to strong core advertising income as their sites revenue grew 22% yoy accelerating from an 18% gain last quarter. We applaud Google’s new enhanced ad campaigns as appropriate steps toward multi-screen advertising further monetizing mobile devices. YouTube traffic is now 40% mobile users and Google was able to increase operating profits despite a decrease in cost per click of 8% yoy 12% qoq. The cost per click is the amount of money that is paid to Google by advertisers for people clicking their ads on Google’s websites. This was outpaced significantly by the volume of paid clicks with aggregate clicks up 26% yoy 8% qoq, and rest of world revenue up 32% driving the company’s positive results.
            The outstanding results in the “google” segment were more than enough to cover for the Motorola segment that is responsible for one of the company’s most recent hardware release, the Moto X smartphone. This segment is still relatively new and a developing part of the company’s business that comprises of fewer than 10% of revenue streams. This segment recorded a $248MM operating loss which is a 29.17% increased loss yoy for the segment while the marginal loss was -21% down from -11% a year ago. Despite this, Net Income was at $3.54BB a 22.97% increase yoy.
            Google flaunts a market leading position and has an array of new products and services that will continue to drive revenue streams. Currently, Google is trading at 29.1x times earnings and has a 5 year historical average price to earnings of 21.6x times. We are maintaining our $1,074 Price Target which reflects a 22.6x multiple to our FY 14 EPS of $47.51. Google play and android continue to be worthy competitors of Apple and IOS while products like “Chromecast”, have gained considerable momentum topping Amazon’s kindle devices as the retailer’s best-selling item in the electronics category.

-Kyle Cruz 

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