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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