Google Crushes Estimates
Do you know someone at Google? Make sure they're buying lunch today. Or dinner tonight.
A day after the company crushes estimates, pundits and prognosticators are firing up their crystal balls and trying to get a beat on what's coming next from the internet search giant.
The numbers from the company are simply staggering. I said on the air last night that Google may have been swinging for the fences, but the ball sailed into the parking lot and smashed a car's windshield. The company soared past the "whisper" number by 38 cents. Earnings jumped 69%, and revenue better than 60%. Google hired about 1,600 new workers over the past quarter -- 200 more than the Street anticipated -- and still managed to beat gross operating margins, reporting 49% instead of the 48% analysts anticipated. In other words, the company continues its aggressive expansion, but isn't sacrificing profits to do it.
"I'm definitely thinking it's a good time to commit capital to Google," says Brian Bolton at Jackson Securities after the numbers were released.
That's likely because Google, even at these lofty levels, isn't really all that "lofty." Even as the company knocks up against $500 a share again, Google trades at about 25 times next year's earnings. Its only real competitor in the sector, Yahoo, trades at 37 times next year's earnings. And Google's growing seven times as fast.
"We think the stock is trading at an attractive multiple point now," says Citigroup's Mark Mahaney.
Piper Jaffray raised its target to $660 a share on Friday. Needham and UBS Securities raised their targets as well.
No one seems to argue that Google simply cannot continue the torrid pace of growth its enjoyed -- better than 60% year-over-year -- but the slowdown is coming a lot slower than just about anyone thought.
"The growth rate so far has been in the 60s. I think going forward we're going to experience a little less growth than we've seen so far. But that is kind of due to the law of large numbers," says Bolton.
True enough, but everything is relative and "a little less growth" for Google is still explosive by just about everyone else's standards.
"If you look at the core story of Google which is when people go to the internet and want to buy something, they start with Google to search, and to look for things in e commerce," Cowen & Co.'s Jim Friedland told me Friday. "Today, Google has 1% of the global ad market. Given the way consumer habits are changing, going more and more to search to start looking for things to buy, why can't this be 10% to 15% over the very long-term in terms of share?"
Google up to 15 times bigger than it already is today? What a concept.
Still, the company seems to be at a kind of financial crossroads where for the first time in its history, drama outside Google's earnings seems to be gaining urgency. Things like the $1 billion copyright suit filed by Viacom where CEO Phillippe Dauman told me "When Google acquired YouTube, they set aside a substantial amount of money to cover copyright liability. So they weren't an 'innocent' going to the party."
Google CEO Eric Schmidt addressed the increasingly contentious suit earlier this week at the National Association of Broadcasters convention in Las Vegas, saying, "In Viacom, you're either doing a business deal with them or you're being sued by them. We started the former, and ended with the latter."
There's also the drama behind whether Google's planned, $3 billion DoubleClick merger will get a second look from anti-trust regulators at the Department of Justice. But that didn't dampen Schmidt's enthusiasm for the deal.
"We literally jumped at the chance to talk to DoubleClick about becoming part of Google," he said.
And then of course there's the ongoing question of whether Google's massive, ongoing, research and development spending will actually yield some kind of return and generate new revenue streams.
"We in the markets will see that (return on investment) over the course of this year," says Citigroup's Mahaney.
But even if they don't, and even if you believe Microsoft's Steve Ballmer that Google is nothing more than a one-trick pony, this is a pretty good horse to ride -- and for the foreseeable future.
"If you look at where we were in 1950, television was only 3% of the total ad market. Today it is about 25%. We think total online advertising will be 25%, and Google will be a pretty big share of that," Cowen & Co.'s Friedland tells me.
"Google is an animal unto itself," Piper's Munster tells me. "They're dominating the areas of enterprise and search, and they'll bring that expertise into the display world, so this is just the start of multiple years of dominance in advertising for Google."
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