logo
  Join        Login             Stock Quote

Google (GOOG) Still Looking Good

 October 17, 2011 11:30 AM
 


Google (GOOG) reported better than expected third quarter earnings of $9.72. Consensus was $8.74. Revenue growth of 33% slightly exceeded consensus estimates. The EPS beat was helped by other income, foreign exchange, and a lower than expected tax rate but this quarter revealed again that GOOG's core organic growth is not slowing down. Given the low P-E of 1 times 2012 earnings excluding over $130 in cash, the growth rate is what matters. This marks the fourth consecutive quarter of accelerating growth for GOOG. The stock is too cheap, even after the big run into earnings and 7% rise after the report. A target over $700 is easily achievable if the economy and market hold together and GOOG tracks to current 2012 estimates.

[Related -Google Inc (GOOG) Q4 Earnings Preview: What To Watch?]

Also encouraging was stable sequential margins. GOOG is tightening its expense growth and it appears that margins may have bottomed in the second quarter. Margin expansion is the big missing piece for GOOG shares. The company continues to invest heavily in mobile, display, Chrome OS, and the Chrome browser. Management commentary indicates that these investments are paying off on the top line. At the same time, products are being dropped so the focus of the heavy investment is on areas that can make a difference.

Closing of the Motorola Mobility (MMI) will dramatically impact financial results in 2012 due the large revenue it brings. GOOG needs to further improve its financial reporting and transparency so core growth in search, mobile, and display is apparent. GOOG also faces tougher comparisons beginning next quarter which could limit reported growth.

[Related -Boost Your Dividend Yield]

Despite these issues, investors should stay focused on top line growth ex MMI and margins. The last few quarters these issues have been in the right direction. I think it is time to believe that GOOG can sustain 20% growth at stable margins. If so, the shares have a lot of upside. I am a believer.

Disclosure: GOOG is widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg's personal accounts. Steve is sole proprietor of Northlake, an SEC registered investment advisor. GOOG is a net long position in the Entermedia Funds, long/short equity hedge funds focused on media, entertainment, communications, and related technologies. Steve is co-portfolio manager of Entermedia, owns a stake in Entermedia's investment management company, and has personal monies invested in the Funds.

iOnTheMarket Premium
Advertisement

Advertisement


Comments Closed


rss feed

Latest Stories

article imageApple Inc. (AAPL) Q3 Earnings Preview: A Hiccup in Sentiment?

Apple Inc. (NASDAQ:AAPL) will post its third-quarter 2014 financial results and business after the market read on...

article imageChipotle Mexican Grill, Inc. (CMG) Q2 Earnings Preview: Will Higher Traffic Offset Higher Costs the Key

Chipotle Mexican Grill, Inc. (NYSE:CMG) will host a conference call to discuss second quarter 2014 read on...

article imageNetflix, Inc. (NFLX) Q2 Earnings Preview: The Ruby Month for a Reason

Netflix, Inc. (NASDAQ:NFLX) will post its second-quarter 2014 financial results and business outlook on its read on...

article imageLadenburg Thalmann Financial Services (NYSEMKT:LTS): Heavy, Durable Insider Buying

Ahh, but any worries over price levels didn’t stop multiple insiders at Ladenburg Thalmann Financial read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.