Canaccord Genuity analysts Michael Graham and Maria Ripps look at Google’s strong Q4 results, bumping up their price target for the internet search giant.

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Google reported strong Q4 results

Google Inc (NASDAQ:GOOG) reported strong Q4 results with accelerating revenue and paid click growth. TAC also showed positive leverage. In addition to the strong top line, sentiment appears bolstered by the announced sale of the MMI handset business to Lenovo Group Limited (OTCMKTS:LNVGY), which should help restore higher revenue growth and margins at the corporate level. We are slightly raising estimates and continue to believe Google Inc (NASDAQ:GOOG) is a healthy core Internet and Tech holding.

Key Points

  • Bullish: 1) Google Inc (NASDAQ:GOOG) Web Site revenue growth accelerated to 22.1% y/y (third consecutive quarter of growth acceleration); 2) traffic acquisition cost (TAC) came in lower than expected and was down sequentially as a % revenue; 3) strong search volumes – paid click growth accelerated for four consecutive quarters to 31% y/y.
  • Bearish: 1) Motorola results (both revenue and operating income) were below our and consensus estimates (we note that Google Inc (NASDAQ:GOOG) intends to sell this segment to Lenovo); 2) CPC decline accelerated to 11% y/y from 8% in Q3/13; 3) EPS slightly missed our and consensus estimates.
  • Estimate changes: We are changing our FY14/FY15 combined gross revenue to $68.2B/$78.4B from $67.8B/$77.9B, and raising non-GAAP EPS estimates to $55.00/$65.23 from $53.14/$64.04.

Valuation

Analysts raise their price target to $1,370 from $1,000. Firm’s new target is based on 21x (up from 19x) analysts’ slightly higher 2015 non-GAAP EPS estimate of $65.23 (up from $64.04).