Google could make its stock price move by over $100 if the internet firm would provide more details on how they make their revenue, argues Morgan Stanley analyst Brian Nowack. In a note titled “The Pathway to $650,” Nowack sends an open letter to new Google CFO Ruth Porat (ex-Morgan Stanley), who replaced Patrick Pichette earlier this year.
Google hiding vital revenue details
Google has historically not provided any meaningful breakouts of many of its products that produce revenues. It details its sales under “advertising” and “other,” segment, and provides a break down of the UK sales. The firm only provides a percentage growth for paid clicks and average cost-per-click. The sum of all this comes to $60 billion revenues per year. Google, however, has never provided information on which of its services (YouTube, Search, Mobile, Desktop, Gmail) is driving the revenues. This has left analysts guessing on the sources of revenue for the Internet firm
In his advice to Google, Nowack notes that a clear picture for mobile search and YouTube will help investors to better gauge performance and “long-term competitive positioning,” resulting in a higher company valuation. Analysts say that they believe Google has the biggest mobile ad revenue base, which could be 50% bigger than Facebook, but since there is no detail from Google, they are “not certain.” Similarly for the YouTube, third-party data suggests that the service dominates in audience size, but in the absence of revenue and growth details, nothing can be said with surety.
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“This uncertainty, mixed mobile search agency checks and FB’s strong and disclosed mobile results create ambiguity about GOOGL’s long-term positioning,” says Nowack.
More disclosure, more valuation
Nowack notes that Google competitors like Facebook, Amazon and Expedia are getting high valuations as they are providing clear revenue reports. In the final analysis, he says that with more detailed disclosure, there is an upside potential of 10% for Google as Amazon and Expedia witnessed a 13% to 18% “mult expansion (in part)” due to improved disclosure.
Google should take inspiration from Apple (which offers a detailed breakdown of sales by device and service) and not Facebook and Amazon (who do not provide product details).