Google (GOOGL, Financial) is one of the fastest growing companies and its shares have appreciated by 23% in the last year. It has shown impressive growth as it grows its revenue and earnings with each passing quarter, through innovation and acquisition of other businesses. However, its stock price has fallen by 4% in the last 6 months. This is mainly because of growing competition from other players and lower ad revenue.
The global technology company reported its quarterly numbers recently. Although it registered growth, the numbers were below analysts’ expectations, causing its share price to fall.
The details
Revenue for the quarter jumped 20% over last year, clocking in at $16.52 billion. However, analysts were expecting it to be at $16.57 billion. One of the key reasons for the miss was lower ad revenue, which affected the top line. Ad revenue is the most important component of Google’s total revenue since it makes 88.9% of it. However, this has actually fallen from 95% a few years ago, reflecting weakness in this segment.
The paid clicks during the quarter rose only 17%, whereas the analysts had estimated an increase of 22%. Thus, this was one of the reasons for lower revenue.
However, there were some segments which showed growth during the quarter. For instance, other revenues registered growth of 50% to $1.84 billion, over the prior year. Also, revenue growth at Google’s website was 20%.
Another positive point to consider was cost per click paid by the advertisers, which brings in revenue to Google. The cost per click metric has been on a decline. But this growth has been slowing recently. The decrease in this metric was only 2% this quarter, as compared to a decline of 6% in the second quarter and 9% in the first quarter. Therefore, this trend should benefit the technology company in the near future.
Earnings for the quarter stood at $6.35 per share, and were below analysts’ expectations of $6.53 per share. The bottom line was lower mainly because of higher expenses. The company has been spending heavily on new technologies. Also, it has hired many new people and is building data centers. These activities resulted in higher costs, affecting the earnings of the company. Nonetheless, these investments should pay off in the future.
Some points to consider
There are many more things to be considered before making an investment decision. First, Google plans to reduce its dependence on advertising sales. Therefore, it is focusing on other segments such as the hardware and service. It launched its new Nexus 6 and 9 this month, which should attract customer attention.Ă‚
Furthermore, Google Express, formerly known as Google Shopping Express, is also being expanded into new markets such as Chicago and Boston. It has also added new merchants to the Express service. It added 16 new merchants recently, which are very popular with the customers.
Also, it has made a number of acquisitions this year, including mDialog, Appurify, drawElements Oy, Tinker Square, Gecko Design, Lynx Design, Zync and Input Factory. These buyouts should help the company grow its business further.
Conclusive thoughts
Google is playing its game well. Although ad revenue has been on a decline, its efforts to strengthen other segments look attractive. With so many new initiatives and the new phone launched recently, Google is all set for a great holiday season. Furthermore, its investments in R&D and in new businesses should also yield benefits in the future. Therefore, this stock is a definite investment for the long run.
