Friday, April 4, 2014

Google shares split 2 to 1

Google's new class C shares began trading yesterday April 3rd and are off to a rocky start. The shares were in the green by around half a percent yesterday but a sharp market-wide sell off sent them tumbling over 3 percent today April 4th. The stock had quite a rough few weeks after hitting highs above 1200 (600) a share and are down to the low 550s. The company really had quite a run so the profit taking is no surprise. The class A shares (GOOGL) have been outperforming the Class Cs (GOOG) at this point, something Google's management claims Class C shareholders will be compensated for after the first year of trading, so we will have to wait and see how that story develops. A few things may be sending the stock down at this point but the main thing on our radar is the fact that Facebook has been taking an increasing amount of mobile ad market-share. A recall has also been issued for Nest Lab's smoke alarms that resulted in a sales halt. Although the issue may take around three months to resolve a drop in the recent acquisition's sales will not have much of an impact. The threats are certainly being explored but Google has so many things up it's sleeve and we plan to hold on to the stock for sure. Google is set to unlock revenue streams beyond its core ad business in a rather long list of different markets. Executives recently discussed offering a fiber internet and phone service, and Chromebook, as well as Chromecast, sales have been strong.  A partnership with eye-wear company Luxottica will also present opportunities for Google Glass. We are especially interested in the Chromebook story considering the recent announced partnership with virtualization software company VMware. The next conference call will be extremely important after a miss last quarter. Investors are going to need to see earnings growth here if the stock is going to carry a lofty P/E multiple above the 30x range. Currently this multiple has actually dropped below 30 to around 29x and further contraction is certainly possible. After considering the serious growth prospects we highly doubt this multiple will drop below 25x.

According to Flurry's recent mobile ad stats,

-Google's services account for 18% of time spent on Android/iOS devices and Facebook is sitting uncomfortably close at 17%
-eMarketer estimated 49% of global mobile ad expenditures went to Google with 17.5% going to Facebook.

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