Google Earnings Q3 2015 Review: Google Flies Past Expectations

  • Alphabet, the company formerly known as Google, blew past estimates on both the top and bottom lines.
  • The company is now beginning to monetize assets like YouTube, and analysts were ecstatic.
  • A $5 billion buyback helped lead the stock 10% higher in after-hours trading.

In the last earnings report before it breaks out units as Alphabet Inc-A (NASDAQ:GOOGL), the company announced earnings of $4.708 billion, $7.35/share, beating estimates of $7.21/share. Revenue came in at $18.675 billion.

The biggest growth came in advertising on Google’s own Web sites, where it drew revenue of $13.087 billion, 16% higher than a year ago and 6% higher than the previous quarter.

The numbers blew past the whisper number, which was for earnings of $6.74/share. A Motley Fool estimate of $18.54 billion in revenue was also left in the dust.

People talk all the time about how Amazon (NASDAQ:AMZN) is disrupting commerce or disrupting the cloud, but Google is disrupting all media. It achieved these results despite the fact that aggregate costs per click were down 11% from a year ago, with cost per click on Google web sites (where the growth was) down 16% from a year ago.

What this means is that the efficiency of Google advertising continues to increase, and its cost to advertisers continues to decline, while the efficiency and cost of advertising by any other means, like TV or print, continues to go up. Web sites have to get more traffic to keep their Google revenue where it was. Publishers and broadcasters find it increasingly hard to compete.

Along with the earnings, Google announced a big share buyback worth $5 billion, and said it will start breaking out other businesses from the main Google business, starting next quarter. Investors cheered like mad, the stock immediately rising in after-hours trading by over 10%. For the GOOGL shares, which have voting rights, the early price post-earnings was $752/share, while for the GOOG shares, which do not have voting rights, the price was $732. Analysts believe the stock is still a bargain, even at these prices, with the shares trading at 19 times forward earnings.

There had been hints of good news in pre-earnings action. During the day on Thursday, both GOOG and GOOGL shares were up almost $10/share, but the optimism was more than met by performance. Analysts were troubled about the strength of the U.S. dollar, concerned that Google brings in 55% of its revenue from other countries, and that this loses its punch in the translation to U.S. currency.

The best summary came from one TV analyst who called new CFO Ruth Porat “the adult in the room,” meaning even more good news is expected going forward. “These large, amazing tech companies still have so much potential,” said another TV analyst.

Buy, buy, buy.

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