Google (GOOG) Tops Estimates on Strong Mobile Growth
Earlier this week, search behemoth Google (GOOG: Charts, News) rallied strongly after reporting fourth quarter earnings that exceeded analyst estimates, prompting a wave of upgrades. The Mountain View, California-based company earned $10.65 per share, or $2.9 billion, on revenues of $12.16 billion.
This topped the Thomson Reuters analyst consensus of $10.56 per share on revenues of $12.16 billion. The company's strong quarter also pushed Google's annual revenues above the $50 billion mark for the first time in its history. The company attributed its robust earnings to increased revenues from mobile ads, an area of weak growth that analysts had been concerned about for most of 2012. Daily Chart
JPMorgan analyst Doug Anmuth noted that Google's business model, much like Yahoo (YHOO
) and Facebook (FB
), is rapidly shifting towards mobile, due to the rising popularity of smartphones and tablets. As a result, advertisers who had previously valued desktop or laptop clicks more than mobile ones have changed their tune, and are more concerned about the total number of clicks rather than the originating devices. However, Google's cost-per-click - which measures the average price advertisers pay the company - slid 6% on a year-on-year basis, but rose 2% on a sequential one. Google is apparently making up for the lower margins with increased click volume. JPMorgan upgraded Google's price target from $802 to $860 in a research note to investors, with an overweight' rating. Morgan Stanley analysts also raised their price target for Google from $794 to $843 with an overweight' rating, while Nomura Securities analysts upgraded the price target from $840 to $860 with a buy' rating. Meanwhile, Wedbush analysts increased their price target from $740 to $770 in a more conservative upgrade. Wedbush analysts are concerned regarding Google's current gross margin of 35.2%, which is below its estimate of 36.4%. Wedbush also believes that its subsidiary, Motorola, could dent margins further and cause volatility in earnings and revenue growth, since Google plans to invest in new hardware products and boost marketing for Motorola's existing line of smartphones. Cantor Fitzgerald analysts echoed the sentiment, but were more optimistic regarding its growth prospects in 2013, stating, "Fourth-quarter results highlight very healthy performances in both search and display, confirming Google's position as one of the best global plays on secular growth in online advertising and e-commerce." Regarding the uncertainty surrounding Motorola, they remained hopeful. "Motorola remains a show-me story, but one that seems on track for a turnaround, with only modest expectations." Google acquired Motorola Mobility in 2011, primarily to gain control of its patent portfolio to widen its defensive moat against Apple and other tech companies. It was a costly acquisition, however, and Motorola still remains in the red, posting an operating loss of $353 million in the fourth quarter. Google's dominance of the mobile market with Android operating system, which powered 68.3% of the smartphone market at the end of 2013, will keep generating steady revenue from mobile advertisements, as well as lock in users to the Google ecosystem. Shares of Google currently trade at 13.8 times forward earnings with a 5-year PEG ratio of 1.14. The company has a cash hoard of $48 billion and $7.2 billion in debt. The stock does not pay a dividend, and has risen 26.5% over the past twelve months. Other News About GOOG Google Shares Soar After Q4 Earnings Prove They "Get It"
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Published on Jan 25, 2013
By Leo Sun