One analyst predicts continued negative sentiment on Google, while another bumped up his price target for the search giant
Google missed earnings estimates in last night’s report, but Wall Street doesn’t seem too worried about it. The search giant’s stock initially pulled back, but they’ve since risen back to the level they were trading at on Tuesday, a couple of days before the earnings report.
Class A shares of Google have now climbed as much as 4.79% to $537.80 per share after last night’s earnings report.
Google’s paid clicks miss estimates
Going into last night’s report, analysts from multiple firms downgraded Google stock as sentiment begins to shift toward the negative, although it still remains mostly positive. While some have since issued positive reports on the company, not all were predicting today’s uptick in its shares.
Ken Odeluga, a senior market analyst at www.cityindex.com.sg, expected sentiment on Google to remain poor. He noted that the search giant posted its slowest pace of growth in five years at 18.9% growth in annual revenue. Also Google’s paid clicks slumped to 14%, their lowest rate in five years and missing the expectation of 17%.
Google sentiment to remain “dour”
He says it’s simply the nature of the beast when talking about a maturing company but notes that there’s more Google could do to please investors in terms of controlling costs.
“In some senses Google has in fact ‘arrived’ in the realm of established slow-growth US corporate giants, at least on a cash-generative basis, churning over $22bn during the year,” Odeluga told ValueWalk in an email. “The problem is profit and growth in its key advertising revenue spheres ?of search and clicks. These businesses are maturing in their current state and growth is slowing.”
“At the same time, costs and expenditure have not been as contained; including for R&D projects–many of which are cool? but of little immediate revenue-creating value,” the analyst added
Odeluga didn’t think last night’s earnings report was enough to “revive the dour sentiment” on Google stock, which resulted in a net 19% decline in the company’s shares over the last year.
Google price target upped by Nomura
In a report dated Jan. 29, Nomura analyst Anthony DiClemente said he bumped up his price target for Google from $600 to $625 per share. He was particularly positive on Google’s Sites revenue, which grew 18%, beating his expectation of 13% growth, and accelerated quarter over quarter to 25% growth, compared to the previous quarter’s 24% growth rate. He notes that most of the shortfall in revenue was in Google’s Other segment due to issues with the inventory of the Nexus 6. He added that capital expenditures were very high, reaccelerating to $3.55 billion and coming out significantly ahead of his estimate. Most of the increase was spending on real estate.
There has been speculation recently about whether Google will follow in Apple’s footsteps by starting a share repurchase plan, but no announcement on this topic was made on this front last night. Management was asked about it on the earnings call, but they only said again that they regularly review the issue with the board of directors.