Google Is Back in Wall Street’s Good Graces as Stock Hits New Record

Google's stock topped $1000 per share for the first time in the company's 15-year history

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Stephen Lam / Reuters

The Big G is back.

Technology juggernaut Google delivered stronger-than-expected earnings results on Thursday, reversing a trend of several lackluster quarters and sending the company’s stock soaring 12% to a new record. On Friday morning, Google shares hit a milestone, rising above $1000 for the first time in the company’s 15-year history. Last quarter, Google’s revenue growth surpassed the psychologically important 20% threshold, increasing to 23% compared with the same period in 2012.

The Mountain View, Calif., money machine, which is sitting on $56.5 billion in cash, said it earned $2.97 billion, or $8.75 per share last quarter, compared with $2.18 billion, or $6.53 per share, last year. To put that in perspective, that translates to profit of approximately $250 million per week during the last quarter. Revenue at Google-owned sites increased to $9.39 billion, a 22% increase over the same period last year. One weak spot: Google’s Motorola Mobile unit posted a loss of $248 million.

“Google had another strong quarter with $14.9 billion in revenue and great product progress,” Google CEO Larry Page said on a conference call with Wall Street analysts. “We are closing in on our goal of a beautiful, simple and intuitive experience regardless of your device.” Page, who has been suffering from a voice condition that makes it difficult to hear him, said that going forward he won’t be joining every earnings call.

(MORE: Pressure Is on Google as Earnings Near)

Google’s strong revenue growth was particularly encouraging for investors, because the company had posted four consecutive quarters of growth below 20% in its core business, a substantial deceleration from the 35% annual growth that the company delivered as recently as 2011. On an important metric, Google said “paid clicks” increased about 26% over the same period in 2012. “We view solid paid clicks growth to be a good indicator of demand, driven by the continued shift to mobile,” J.P. Morgan tech analyst Doug Anmuth wrote in a note to clients.

Like most big U.S. technology companies, Google is generating ever more revenue from its international operations. The company said revenue from outside the U.S. totaled $7.67 billion, representing 56% of total Google revenues in the third quarter of 2013, compared with 55% in the second quarter of 2013 and 53% in the third quarter of 2012.

“Google posted a strong quarter with revenues and EPS [earnings per share] ahead of consensus,” said Donal Reynolds, senior vice president at Standard Life Investments. “Motorola losses did increase slightly, but the market largely looks through these and focuses on the trends at core Google.” Reynolds added: “Overall, a good quarter from Google with continued revenue momentum at core Google.”

Google’s report wasn’t all gravy, however. Last quarter, Google’s “cost per click,” which is the price marketers pay to advertise on the company’s platform, decreased by about 8% from the third quarter of 2012 and about 4% over the second quarter of 2013. As users shift from desktop computing to mobile computing, Google’s cost per click has declined, because marketers tend to pay less for ads on the company’s mobile search platform.

In another weak spot, Google said its Motorola Mobile unit posted a loss of $248 million, compared with a loss of $192 million in the previous quarter. Google has been aggressively cutting costs at Motorola and last quarter introduced the Moto X phone, the first Motorola device developed completely in-house at Google. Clearly, the integration of Motorola into Google remains a work in progress, but there’s no doubt that mobile is now a central focus at the company.

In an impressive statistic, Google said almost 40% of traffic to the company’s YouTube online video service now comes from mobile devices, up from just 6% two years ago. “We expect the strong performance of Google Sites to continue, driven by strength in mobile search and YouTube,” Anmuth wrote. “We remain positive on YouTube’s ability to attract more TV dollars over time and also note that YouTube video ads grew more than 75% [year-over-year in the third quarter].”

Google is continuing to push ahead on its non-core initiatives, including Fiber, the company’s high-speed Internet access project, Google Glass, the computerized eyewear, self-driving cars, Chrome hardware, enterprise products, and other projects. Analysts have occasionally expressed concern that these efforts could divert focus and resources away from the company’s core business, but with Google’s profit engine firing on all cylinders, investors seem happy to let the company pursue these projects.

“We remain positive on Google’s investments into new products across Google services as we believe the company has been increasing its pace of innovation and focus on the user experience and there are significant market opportunities ahead,” Anmuth wrote. On the conference call with analysts, Page said he is now spending most of his time on the company’s mobile efforts, as opposed to its desktop-software products. “I think that’s what most people will do over time,” Page said.

4 comments
InfoSmitty
InfoSmitty

Google is pumping it's revenue artificially by showing more HQ laser targeted ads on top of decreasing search quality results. Purposely lowering the natural search results to increase clicks to its ads.. How long do you think they can continue to do this?

For a long time G had little competion, but that time has passed. Even Bing now has better search results.
Newcomers like duckduckgo with spot on search results will grow once people realize that google is fooling them with low quality results.


firmsoil
firmsoil

Billions stashed away in offshore tax havens, gargantuan privacy violations, what's not to love!

SactoMan81
SactoMan81

Google is popular again because its Android operating system has now become the only viable alternative to Apple's iOS. And Android phones of the low-cost variety are becoming very popular in India and China.

flux8
flux8

@SactoMan81 This is an often repeated fallacy.  Android's success in China does absolutely nothing for Google.  Chinese phones come with a modified Android that doesn't use Google search or services.  Therefore, China generates almost $0 for Google.