Google Beats In A Big Way

8/17/2015


  Recent Price
$691
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
26
  Shares (millions)
743
  Long-Term Debt As % Of Capital
2%
  52-Week Price Range
$713.33 - $486.23

To determine whether a company's earnings report truly beats Wall Street expectations, watch how the stock behaves following the announcement.

Google's ($691; GOOGL) stock-market value jumped $65 billion on the trading day following release of its June-quarter results. To put that move in perspective, Google gained more market capitalization in one day than the total capitalizations of 431 of the companies in the S&P 500 Index.

What did investors find so bullish?

• Per-share profits of $6.99 beat the consensus estimate by $0.29, the first positive surprise in seven quarters.

• Aggregate paid clicks rose 18% year-over-year and 7% sequentially, with paid clicks on Google websites jumping an impressive 30%.

But these were just appetizers. What has Wall Street in a feeding frenzy are some broader issues — Google's dominance in an increasingly mobile world, and its new-found cost religion — plus a just-announced corporate restructuring (see Portfolio Review for details), which provides greater transparency into the firm's operations. The stock is a Focus List Buy and Long-Term Buy.

Mobile moment

Investors have long questioned whether Google could maintain its dominance in search in a mobile world. The June quarter put some of those fears to rest. In 10 countries, including the U.S. and Japan, more Google searches now take place on mobile devices than on computers. A big driver of Google's mobile success is its YouTube unit:

• More than a billion people use YouTube.

• On mobile alone, YouTube reaches more 18- to 49-year-olds in the U.S. than any cable network.

• Growth in watch time on YouTube is up more than 60% year-over-year, the company's fastest growth rate in two years, while mobile watch time on YouTube is up more than 100%.

• YouTube's growth has been noticed. The number of advertisers running video ads on YouTube rose more than 40% in the quarter, and the top 100 advertisers boosted spending an average of more than 60%. 

Google also appears to be making headway on another mobile issue — pricing. Ads on mobile devices carry lower prices than on desktops. However, the firm says the gap is narrowing, with mobile pricing up and desktop not declining.

Another lever for profits is the expense side of the income statement. Google has long been criticized for spending aggressively, including "moon shots" such as driverless cars and biotech research to combat aging. This quarter was the first under new Chief Financial Officer Ruth Porat, who came from Morgan Stanley ($38; MS) with a reputation for expense discipline. An improving cost structure yielded Google's highest operating profit margin since late 2013.  

Conclusion

Trading at less than 24 times the 2015 consensus earnings estimate of $28.89 per share, or 21 times excluding its $64.5 billion ($87 per share) in net cash, Google offers an attractive growth play. 

An annual report for Google Inc. is available 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 '15
6.99
vs.
5.98
11%
584.70
-
529.00
23 - 21
Mar '15
6.57
vs.
6.27
12%
581.60
-
489.57
23 - 19
Dec '14
6.88
vs.
6.70
15%
590.78
-
495.83
23 - 20
Sep '14
6.35
vs.
5.63
20%
607.24
-
565.90
25 - 23
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2014
66.00
25.48
0.00
612.76
-
495.83
24 - 19
2013
59.83
22.07
0.00
558.97
-
346.81
25 - 16
2012
50.18
19.86
0.00
386.13
-
277.50
19 - 14
2011
37.91
18.21
0.00
322.49
-
235.86
18 - 13
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
86
81
30
92
95
95
89

   * 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