Google Inc (GOOG) 3Q ‘Healthy,’ Some Concerns Remain

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Google Inc (NASDAQ:GOOG) stock appreciated 13% on the back of ‘healthy’ third quarter results helping the market valuation to reach $40 billion. In a report, BGC analyst Colin W. Gillis, citing Bloomberg data, noted that Google at present is trading at a 12-month trailing earnings ratio of 29x, a significant increase from 20x in the previous two years.Google Inc (GOOG) 3Q ‘Healthy,’ Some Concerns Remain

Though the analysts “respect Google’s software and product prowess,” a few concerns were noted.


The analyst noted that Google Inc (NASDAQ:GOOG) locked earnings of $10.74 backed by a lower than expected tax rate. The tax rate prevalent for the quarter was shown at 14.8%. Earnings per share would have come down to $10.33 in line with the expectation of $10.36, if the tax rate was 18.8% as taken in the June quarter of 2012.

Click price decline remains a concern although paid clicks surged 26% year on year. Click price decline went down 8%, and has been on the downswing for eight straight quarters. Decline in pricing is more distinguished as enhanced campaigns were launched to improve the pricing.

Motorola failed to impress with its performance, posting an operating loss of $248 million, which increased from $192 million in the corresponding quarter of the previous year. According to analysts, this segment recorded a loss of $1 for every $4 in revenue.

Analysts note that Google Inc (NASDAQ:GOOG)’s core business contribution has gushed to revenue growth of 21.6% year on year, but it is expected to hover around the same rate over the next few quarters possibly declining in the December quarter to 20.6% year on year.

Google Q3 numbers

The search engine juggernaut posted consolidated revenue of $14.893 billion, an increase of 5% year on year, but falling below the analyst’s expectations of $15.059 billion. Adjusted EPS came in at $10.74, which was above the analyst estimate of $10.55, and the consensus estimate of $10.32. Google-controlled sites clocked in revenue of $9.39 billion forming 68.3% of Google’s total revenue and an increase of 5% year on year. Revenue from outside the United States came in at $7.67 billion and contributed 52% in total revenue. For the September quarter, Google Inc (NASDAQ:GOOG) reported a capex of $2.29 billion. Google has a cash balance of $56.5 billion, and long-term debt is $2.23 billion as of September 30, 2013.

The BGC analyst has increased the price target on Google from $850 to $975 and maintains a Hold rating on the stock.

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