Google net income up 26 per cent

As highlighted by Larry Page on the call, third-quarter results were gangbusters - strong top/bottom-line, with net revenue coming in at $7.5 billion (8.6% quarter-over-quarter) versus Street/our estimates at $7.2 billion/$7.4 billion (we were Street high at 7.6% quarter-over-quarter).

Bottom-line earnings per share were reported at $9.72, significantly better than the Street/our estimates at $8.74/$8.92.

The 28% paid click growth in the third quarter was the highest paid click growth reported since the fourth-quarter of 2007 on our estimates. While there is likely a mix shift coming from more mobile searches, international and AdSense partners, the paid click growth was impressive.

With the higher volume and mix shift, cost per click was lower as a result, up 5% year-over-year (or down 3% excluding foreign exchange).

Mobile advertising continues to be a strong growth driver and likely drove a significant ramp in 28% paid click growth. Considering the near-term focus is on building the critical mass of mobile search than monetization, we think the $2.5 billion run rate signals that we are at an inflection point of mobile volume growth.

Display advertising continues to grow strongly and Google noted that its top 20 customers are now spending an average of $15 million compared to just $2 million in 2009.

Furthermore, over the past six months, display deals with agencies totaled about $600 million, signaling the wallets are opening up from the advertisers, likely at the expense of TV ad budgets.

New Google Plus (G+) user metrics, product launches, search or display enhancements, monetization levers, general advertising market conditions, trial date for Oracle (ORCL) /Google set for October 31, Department of Justice (DOJ) approval of the Motorola Mobility Holdings (MMI) deal, updates on the regulatory process of reviews, and more Android vendor support for the transaction.

The downside is $531, which is based on 12.5 times estimated 2012 pro forma EPS of $42.50, which represents the stock's three-year trough multiple.

We are now modeling 2011 net revenue/pro forma EPS at $29.2 billion and $37.20 versus $29.0 billion and $35.90 previously.

For 2012, we are estimating net revenue/pro forma EPS at $35.4 billion and $42.50 versus $34.7 billion and $41.50 previously.

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