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: Charts, News) and Facebook (FB: Charts, News), 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" Google easily tops earnings; shares rally. Google Is Working On A 'Smart Watch' Of Its Own Will Google also release a smart watch before Apple? Other Stocks in the News Amazon Is Taking Over the World How long will it be before Amazon complete controls the world's e-commerce? Here's the Affirmation iRobot Has Been Waiting For Are robots finally a viable market for investors? Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Jan 25, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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