Google Still In its Adolescence

8/25/2014


  Recent Price
$597
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
25
  Shares (millions)
686
  Long-Term Debt as % of Capital
3%
  52-Week Price Range
$615.05 - $421.91

Google ($597; GOOGL) just celebrated its 10th birthday as a publicly traded company. The company went public Aug. 19, 2004, at a split-adjusted price of $42.50, giving the stock a gain of approximately 1,300% in its fairly brief life. While investors should not expect Google to match that stellar performance over the next 10 years, this market adolescent still has ample capital-gains potential.

Digital advertising makes up only about one-quarter of total media ad spending worldwide, leaving plenty of opportunity for Google to expand its digital reach. And the firm's sprawling investments, from self-driving cars and alternative energy to drones and space travel, offer the potential for home runs down the road. The stock is a Focus List Buy and Long-Term Buy.

Business is clicking

Digital ad spending worldwide is expected to hit more than $137 billion in 2014, according to eMarketer. That's an increase of nearly 15% over 2013 levels, and Google continues to gain market share. The company's revenue grew 22% in the June quarter, fueled by 23% revenue growth at company sites (69% of total revenue) and 7% growth at partner sites (21% of total revenue). Aggregate paid clicks rose 25% in the quarter, powered by a 33% increase in clicks from Google's sites. Google records a click each time an internet user clicks one of its advertisements.

One closely watched metric for Google is cost per click, which has been declining with the growth of mobile computing. While cost per click decreased approximately 6% in the June quarter from a year earlier, it held steady with the first quarter of 2014, marking two straight quarters with cost per click flat sequentially. That trend suggests mobile click fees may be starting to firm.

For 2014 overall, the consensus earnings estimate is $26.44, up 20% from $21.94 in 2013, on revenue of $66.7 billion, up more than 11%. For 2015, the consensus earnings estimate is $31.57, giving the stock a valuation of less than 19 times the 2015 estimate — or about 16 times earnings excluding cash holdings of roughly $61 billion, or about $90 per share. That seems fairly cheap for a company growing the top and bottom lines at healthy double-digit rates.

Which Google to own

On April 2, Google issued shares of a Class C stock as a dividend to stockholders. The effect was a 2-for-1 stock split, with Google holders now owning shares in GOOGL (the "old" Class A shares) and GOOG shares (the Class C shares, which trade at $587). GOOGL shares, which have voting rights, have consistently traded at a premium to nonvoting GOOG Class C shares.

Google has said that should a discount persist between the two share classes during the first year of trading, the company would compensate GOOG holders with additional shares and/or cash. The Forecasts recommends that holders of GOOG Class C shares maintain positions, but new buying should be done in the GOOGL shares.

You can obtain an annual report for Google Inc. at 1600 Amphitheatre Parkway, Mountain View, CA 94043, (650) 253-0000, www.google.com.

GOOGLE
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jun '14
6.08
vs.
4.78
22%
572.40
-
502.80
26 - 22
Mar '14
6.27
vs.
5.79
19%
614.44
-
541.14
28 - 25
Dec '13
6.01
vs.
5.33
17%
560.50
-
421.49
26 - 20
Sep '13
5.37
vs.
4.44
12%
464.00
-
422.78
23 - 21
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2013
59.83
21.94
0.00
560.50
-
347.76
26 - 16
2012
50.18
19.88
0.00
387.19
-
278.26
19 - 14
2011
37.91
18.02
0.00
323.38
-
236.51
18 - 13
2010
29.32
14.80
0.00
315.42
-
216.82
21 - 15
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
87
80
48
95
92
NA
63

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com