Friday, January 31, 2014

Google Earnings Call Fourth Quarter Ending Dec. 31st 2013

Google reported for Q4 and full year ending December 31st yesterday January 30th. The company missed EPS by 28 cents but they beat revenue by 100MM. The stock price reacted very positively to the earnings release closing at 1180.97 USD per share today January 31st. This is up around 4% from the 1135.39 USD per share that Google closed at right before the conference call.
Revenues came in at 16.9BB with 1.2BB of this being from the Motorola segment. This number was up 17% YoY and 13% QoQ. Google segment revenues were 15.7BB up 23% YoY and 13% QoQ. Full year 2013 revenue and EPS were about $59,826BB and $40.12 respectively.
Site Revenues were $10,551BB up 22% YoY and 12% QoQ. $3.522BB of this is from network member websites and this value is up 2.5% YoY and 12% QoQ
Other Revenue came in at 1.647BB up 99% YoY and 34% QoQ. The quarter on quarter increase can be attributed to seasonality and sales of hardware products like the Nexus tablet, Chromecast, and Chromebooks. The Year on Year increase is due to the increasing use of Android mobile devices as digital sales of apps and content using Google Play drove this revenue segment almost twice as high as last year.
This quarter the company sold off their Motorola segment to Lenova for 2.9BB and had investors cheering despite the multibillion dollar write down and loss that Google took on the sale. Still, considering the segment is decreasing bottom lines and the 2.9 billion that they received can be used to pay for other acquisitions, everybody agrees this was the right move. Also a 10 Year global cross-patent deal was struck between Samsung and Google. Samsung was definitely more likely to work with Google again now that they have sold their handset business and the hardware operating system duo should be especially beneficial to Google. Samsung is known for tweaking the Android operating system and now that it will most likely be using more of Google’s apps, Google play may see heavy growth like it did YoY in Q4 of 2013. Realistically, high end devices make the most purchases on mobile devices and a lot of the market share that Android dominates is low end where app and content purchases are minimal. Increasing amounts of Google apps on high end Samsung devices will bring more revenue.
 A couple recent acquisitions include Nest Labs for 3.2BB, a company that sells “smart” home devices like thermostats and smoke detectors that can save energy and automatically adjust under different conditions. Also The company is set to acquire an artificial intelligence company called DeepMind for an estimated cost of at least 400MM (acquisition price has not been disclosed but it will very likely be above 400MM).

Now, last but not least Google has finally announced a share split and creation of new “Class C” shares that will have no voting rights. This comes after settling and lawsuit between Google and stakeholders against the split that gives more voting rights to founders Larry Page and Sergey Brin. More details on the split are set to emerge but it will take place on April 2nd. I feel that it is very important to note a contingency of the approved stock split that requires Google to Pay Class C shareholders if the Class A shares are trading higher than Class C shares a year after the split. Google will be liable to pay up to 7.5 Billion to shareholders if the split does not roll out accordingly. Google may be responsible for a payment to shareholders based on the percent difference between Class A and Class C shares. Note that the payment increases are capped at 5% (A difference of 5% or above will result in the same payment by Google), and Google will pay have to pay Class C shareholders the % difference between both classes of shares multiplied by the class A share price. The company will be issuing around 277 million shares and the 2-1 split should cut the stock price just about in half when the NASDAQ opens on April 2nd. Class C shares will trade under GOOG and Class A shares under GOOGL.

We are very comfortable with our position in Google at this time and have a price target of $1300.

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