Google Inc (GOOG)’s Pattern Of Driving Results Difficult To Sustain


Google Inc (NASDAQ:GOOG) reported its fourth quarter results last week. The company’s consolidated revenue jumped 16.9% to $16.8 billion, beating the consensus estimate of $16.7 billion. Revenue of Google-owned websites inched up 22.1% to $10.5 billion. That makes up 67.2% of the company’s total revenue. Meanwhile, Google Network revenues grew at a modest 2.5% to $3.5 billion. Motorola generated $1.4 billion in sales, accounting for 7.4% of the company’s consolidated revenue. But the search engine giant’s adjusted earnings of $12.01 a share missed the consensus estimate of $12.21 per share.

Google Website

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Google should focus on new formats, emerging markets

The biggest reason for lower-than-expected earnings was a consistent sliding in cost-per-click. Click pricing declined 11% during the December quarter. It was ninth consecutive quarter of decline in Google Inc (NASDAQ:GOOG)’s CPC. BGC Partners analyst Collin W. Gillis said in a research note that the click prices are falling because more clicks are originating from mobile devices. Advertisers pay Google about 50% less for smartphone and tablet clicks compared to PC clicks. That’s because mobile clicks are less effective than traditional clicks.

Google Paid Click

BGC Partners is optimistic about the core properties, which grew 22.1% in the fourth quarter. But the Mountain View, California-based company’s pattern of boosting results is worrisome, says Gillis. The company is relying on growth in the number of paid clicks to offset the decline in cost-per-click, which would be difficult to sustain. The research firm says Google Inc (NASDAQ:GOOG) should focus aggressively on new formats, mobile and emerging markets to improve its click price in the future. That’s necessary for the company to maintain its current growth rate.

Google has close to $59 billion in cash

Google Inc (NASDAQ:GOOG) ended 2013 with $58.7 billion or $172.19 per share in cash. The company has a net long-term debt burden of $2.23 billion. During the fourth quarter, the search engine giant generated $5.2 billion in cash flow from operations. Operating expenses rose 14.35% YoY to $5.5 billion. Google still dominates the global search landscape, with 67.3% market share. Microsoft Corporation (NASDAQ:MSFT) is distant second with 18.2% share.

Google Microsoft

BGC Partners has reduced their 2014 earnings estimate for Google Inc (NASDAQ:GOOG) to $50.73 from $51.37 per share earlier. Gillis maintains the revenue estimate at $70.2 billion for the full year. Wall Street consensus estimates Google to generate $69.7 billion in revenues and $52.04 per share in earnings in 2014. BGC Partners has a Hold rating on the stock with $1,075 price target.

Google Inc (NASDAQ:GOOG) shares jumped 0.19% to $1,183.27 in pre-market trading Monday.


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