Google Inc (GOOG) Earnings: Jefferies Says Buy, BAML Says Not So Fast

Google Inc (GOOG) Earnings: Jefferies Says Buy, BAML Says Not So Fast
<a href="">WDnetStudio</a> / Pixabay

We earlier posted analysts’ reaction to the Google news of the pre-announcement. Some other analysts have weighed in on the issue. Just a recap of events and earnings first.  Google Inc (NASDAQ:GOOG) pre-announced 3Q12 earnings this afternoon, reporting core GOOG sequential net revenues growth of 4.7%, which was ~300 bps below street expectations. The miss was, in large part, driven by Motorola Mobility Holdings Inc. (NYSE:MMI), with revenue down meaningfully, versus street numbers, and costs ahead of expectations. Volume accelerated 500 bps Y/Y, however, it was down 900 bps Q/Q, while click pricing was down 15%, about in line with 2Q.

Google Inc (GOOG) Earnings: Jefferies Says Buy, BAML Says Not So Fast

Core Google Inc (NASDAQ:GOOG) net revenues growth decelerated to 16% Y/Y to $8.75B, below Street expectations of $9.0B, as Google Web Site net revenue growth decelerated ~690 bps to $7.2 billion. Google Network revenues decelerated to 19.7% Y/Y.

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Other revenues accelerated more than 3,000 bps on revenue from the Google Nexus 7 tablet. CPCs declines of 15% Y/Y were a modest, 100bps improvement over -16% Y/Y in Q2, while Paid Click growth decelerated 900 bps to +33% Y/Y. Declines in Motorola Mobility Holdings Inc. (NYSE:MMI) revenue accelerated to -21% Y/Y, as mobile device revenue declines accelerated to -27% Y/Y, and home segment revenue fell 3.4% Y/Y. In addition, operating losses continued to widen, as PF operating income was down $151M, representing a PF operating margin of ~6%.

However, Barlcays  believes ‘the sell-off presents a buying opportunity, as we think the Street was overly optimistic going into the quarter, and did not fully discount the potential MMI drag on the business.’

BAML analysts had a more negative opinion. They note it is likely that the mobile transition contributed to some of the Google Website revenue miss, which is a concern among investors. Additionally,  Motorola revenues, at $2.6bn, were below BAML forecasts of $3.1bn, and non-GAAP margins were at -6% in the quarter vs their +1% expectation. While Google Inc (NASDAQ:GOOG) indicated expense cuts will lag revenue declines, street concerns on EPS pressure may persist. Motorola drove $0.40 of the EPS miss vs their estimates.

BAML’s  states that the biggest issue in the quarter, in their view, was that Google Websites revenues were about $300mn below their estimate $7.72bn, vs $8.07bn (50% of miss was due to FX) and only grew about 4% sequentially q/q adding back $90mn for FX.

Issues for the call included the question of whether there were any one-time items that drove q/q weakness in Google revenues. Did macro factors impact Intl growth and what verticals were most impacted? Did tough comps vs ad changes in 3Q’11 impact trends? How is mobile impacting Google Website revenue growth (query cannibalization, lower CPCs) and what are trends from here? Could the Google Inc (NASDAQ:GOOG) product search transition aid growth in 4Q? What is the outlook for Motorola operations? And, what happened today exactly?

Disclosure: No position

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