) is set to release its Q4 2012 earnings Tuesday, January 22. The
company had an eventful third quarter earnings release, which saw
the stock drop over 10% on that trading day. In Q4 earnings
release, the focus will once again be on the progress Google has
made in its mobile business. Additionally, we will track the
company's progress with its non-core products such as Youtube,
because we think that it is important for Google to diversify its
revenue base going forward.
See our complete analysis of Google here
Recap Of Earnings In Q3 2012
For Q3 2012, the company reported consolidated revenues of $14.1
billion, up nearly 45% year-over-year. However, Google's core
revenues only grew to $12 billion, a growth of 18% year-over-year.
The large difference in the two percentages occurred because Google
reported no revenues for Motorola in 2011, but reported revenues of
$2.6 billion in Q3 2012. The company's consolidated operating
income was hurt too, which fell to $2.74 billion from $3.06 billion
in 2011. It also reported a significant jump in traffic acquisition
costs as a percentage of advertising revenues, 26% in Q3 2012
versus 24% in 2011. Additionally, as a result of Google's push
into mobile advertising, the company's cost-per-click dropped 15%,
but there was 33% growth in aggregate paid clicks. This combination
led to a 16% increase in advertising revenues.
Mobile In Focus For The Long Term
During Google's Q3 earnings call, CEO Larry Page, reiterated the
company's focus on its mobile and social products. In our
opinion, these product lines are key for Google over the long term
because over time more users will access the web via smartphones
than personal computers.
Google, like other internet players, has had a difficult time
monetizing its mobile user base. Therefore, during this quarter's
earnings release we will be closely watching Google's mobile
advertising run-rate which quadrupled year-over-year in the third
quarter to $8 billion from $2.5 billion.
Since the average revenue per search is lower on the mobile
platform, mobile search growth will continue to weigh on the
average cost-per-click metric that Google reports for its business
overall. We aren't too worried about this yet since there is a big
disconnect between the amount of time a user spends on mobile
phones and the proportion of advertising spending on the mobile
platform. We think that mobile advertising spending as a whole will
increase in the coming years, and Google's position in the market
will help it capture a material chunk of the ad spending.
YouTube's Revenues Provide Some Diversification To
Google's YouTube business has much different dynamics than the
company's search business, and we think that it offers much needed
diversification to Google's overall revenues. According to our
estimates, the division constitutes approximately 8% of
Google's value. Revenues from this division were around $1.5
billion in 2011, and we think that they will continue to increase
and hit around $15 billion by the end of our forecast period.
YouTube has been solid over the past year, as yearly account
sign-ups on the site doubled year-over-year in Q2 and users are
said to be uploading 42 hours of video every minute. We will be
closely watching for any new numbers regarding YouTube during this
earnings call because of its importance as a diversifying factor to
Google's overall revenues.
We currently have a
$691 price estimate for Google
, which is approximately 5% below the current market price.
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