Google reported quarterly earnings on October 18 that did not meet analyst forecasts. Total revenue was $10.78 billion, while earnings were $9.03 per share. Goldman Sachs forecast revenue of $11.76 billion on earnings of $10.23 per share. Paid click grew 33% compared to last year, while cost per click declined 15%.
At the centre of investor focus is the growth in mobile usage against a decline in search queries on the desktop. ComScore recently reported that mobile devices were growing faster than desktop searches. This was not expected.
Larry Page, Google’s CEO, highlighted the growth in mobile. He cited its mobile business is now running at $8 billion a year in revenue, compared to $2.5 billion last year.
Still, investors should ask be these questions:
- What is the gross margin for mobile compared to the desktop?
- How much more losses will the Motorola unit be generating in the future?
- If Google Nexus 7 tablets generated around 300 million in revenue, how much profit was made from sales?
- How many more applications sold as a direct benefit of Nexus sales?
- Android is free: how much is Google losing by developing and selling Android?
- What contingencies are there for dealing with privacy complaints from government? The FTC is currently accusing the company for wrongly refusing to grant mobile-phone licenses that were essential standards. Google then tried to get court injunctions to stop competitors from selling their devices.
- What contingencies are there for anti-trust issues?
Google shares fell dramatically after earnings were reported. Shares closed below the 50-day simple moving average:
Business Section: Investing Ideas
With Google’s sharp share price decline, investors are re-evaluating growth prospects. Google trades with a POP (“price of profit”) of 18. By comparison, Facebook (FB), who reports on October 23, has a POP of 56. If Google is having trouble growing profits from ads, Facebook will have even more difficulty.
1. Google Inc. (GOOG, Earnings, Analysts, Financials): Google is the world’s most popular search engine. Market cap at $221.95B, most recent closing price at $678.67.
2. Facebook, Inc. (FB, Earnings, Analysts, Financials): Market cap at $41.39B, most recent closing price at $19.32.
Trading at far lower POPs but facing slowing businesses in search, Microsoft (MSFT) and Yahoo (YHOO) should be added to the watch list, with a POP of 10 and 16, respectively.
3. Microsoft Corporation (MSFT, Earnings, Analysts, Financials): Develops, licenses, and supports a range of software products and services for various computing devices worldwide. Market cap at $236.07B, most recent closing price at $28.0.
4. Yahoo! Inc. (YHOO, Earnings, Analysts, Financials): Operates as a digital media company that delivers personalized digital content and experiences, across devices and worldwide. Market cap at $18.68B, most recent closing price at $15.77.
Mobile players include these companies:
5. Research In Motion Limited (RIMM, Earnings, Analysts, Financials): Designs, manufactures, and markets wireless solutions for the worldwide mobile communications market. Market cap at $4.03B, most recent closing price at $7.69.
6. Apple Inc. (AAPL, Earnings, Analysts, Financials): Designs, manufactures, and markets personal computers, mobile communication and media devices, and portable digital music players, as well as sells related software, services, peripherals, networking solutions, and third-party digital content and applications worldwide. Market cap at $594.35B, most recent closing price at $634.03.
7. Nokia Corporation (NOK, Earnings, Analysts, Financials): Provides Internet and digital mapping and navigation services worldwide. Market cap at $10.78B, most recent closing price at $2.81.
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