- Google earnings came out on Jan 29, 2015 post market hours.
- Google missed revenue and EPS estimates for Q4 2014.
- Higher profitability a positive in Q4 2014.
Google (NASDAQ:GOOGL) reported its earnings for Q4 2014 on 29 Jan 2015. Google missed analyst estimates of revenue and non GAAP EPS. Google revenue growth slowed during the quarter, dragged in part by the strengthening of the US Dollar. Google profitability improved significantly during Q4, driven partially by gains from the sale of Motorola. On the whole, Google’s Q4 performance was mediocre on most fronts, barring the improvement in profitability. For a quick roundup of Google earnings you can also watch our updated Google stock analysis video.
Google Earnings Fall Short Of Analyst Estimates
Google earnings for Q4 2014 missed analyst estimates. Google revenue for Q4 fell short of estimates by about $400 million. In spite of the improvement in operating margins, Google fell short of Non GAAP EPS (earnings per share) estimates by about 4%.
|Revenue ($ billion)||18.10||18.50||-2%|
|Non GAAP EPS ($)||6.88||7.13||-4%|
Google Revenue Q4 2014
Google revenue for Q4 came in at $18.1 billion, growing at 15.9% over Q4 2013. Q4 2013 includes revenue contribution from Motorola. The above growth computation reflects the growth in revenue excluding Motorola revenue from Q4 2013.
Google earned 89% of its revenue or $16.15 billion from its core business of advertising. Google’s ad revenue grew by 15% YoY. Ad-revenue on Google sites grew by 18% YoY, to $12.43 billion, and ad-revenue from network partners grew by 6% to $3.72 billion. Google’s non-core businesses grew by 19% YoY, to $1.95 billion. Overall Google revenue growth rates slowed across segments.
The lower growth is attributable in part to the gradual shift from desktop advertising to advertising on mobile devices, which attract lower ad-rates. The slowdown is also partially attributable to the strengthening of the US Dollar in Q4, which cost the company about $393 million in revenue, almost the same amount by which Google revenue missed estimates.
However, even if Google had just about met estimates, the company’s revenue would’ve grown at about 18.5%, which is still lower than Google’s LTM (last twelve months) average growth rate of 20.6%. So, all in all, a lackluster performance in terms of revenue growth.
Google Operating Metrics
Google Traffic Acquisition Costs (TAC): TAC for Q4 came in at 22% of ad-revenue. The reduction in TAC from earlier levels could be because Google was replaced by Yahoo as the default search engine on Mozilla’s Firefox browser. Earlier, Google would have to pay Mozilla. However, this could be one of the factors that have impacted revenue growth as well.
Paid Clicks: Growth in Paid Clicks slowed, dragged by an 11% fall in Paid Clicks on Google’s network partner sites. Paid Clicks on Google properties grew by 25% marking a 1% improvement over Q3 2014. The aggregate Paid Clicks grew by 14%, slowing, both on a YoY basis and on a sequential basis.
Cost-Per-Click (CPCs): CPCs on Google network partner sites grew by 6% YoY and saw the first uptick after falling for several quarters on the trot. CPCs on Google sites fell by 8% dragging the aggregate CPC by 3%.
To sum up, there’s not much to be excited about here.
Google’s profit margins swelled in Q4. Google’s operating and net profit margins came in at 24.3% and 26.3% respectively. The major spike in net margins was due to a $740 million gain from the sale of Motorola. The deal was closed on 29 October 2014.
Excluding gains from the sale, Google’s net margin would come in at about 22%, which is still higher than most of the numbers Google has delivered over the last two years. The operating margin in Q4 was also higher than the average over two years. On the whole, the improvement in profitability was one of the highlights of Q4 for Google. Further, it’s probably also the sole reason why Google stock is up by about 1.5% in pre-market trade.
Google valuations post Q4 earnings are as follows:
- Google Price To Sales Ratio: 5.26
- Google PE Ratio: 24.07
Google earnings for Q4 didn't give investors too much to cheer about. However, Google is a stable company, and it's not going to turn into a bad one overnight. It’s still the world’s number 1 search engine, and holds significant control over online advertising. For those who like stable stocks, Google might present a good investment opportunity over the coming 12 months, more so now, with profit margins returning to more familiar levels.
Google revenue estimates for 2015 stand at $78.5 billion. As we highlighted in our Google earnings preview, based on 2015 revenue estimates, Google valuations indicate a 21% upside potential in 2015, with a target price of $617 a share.
For more details, you can also read through the Google earnings call transcript.
Google Earnings Q4 2014 Preview (Published on 21 Jan 2015)
- Google earnings are due on 29 Jan 2015 after market hours.
- All eyes will be on Google earnings per share numbers in Q4.
- Google valuations indicate a 21% upside potential.
The Google earnings release for Q4 2014 and the full year, FY 2014 is due on 29 Jan 2015. After missing analyst estimates for revenue and EPS in its Q3 earnings, Google earnings for Q4 will be closely watched, amid growing competition in the advertising space.
Google Earnings Schedule For Q4
- Google earnings date - 29 Jan 2015
- Google earnings report - 4:00 P.M EST
- Google earnings call - 4:30 PM EST
Google Earnings: Q4 Analyst Estimates
Google Q3 earnings saw the search giant miss revenue and Non GAAP earnings per share estimates by 0.4% and 2.9% respectively. Google really needs to deliver some good numbers for Q4, and as per analyst estimates, the street expects Google to deliver an 18% YoY growth in revenue and a 17% growth in Non GAAP earnings per share.
|Analyst Estimates||YoY Growth|
|Google Revenue ($ billion)||18.5||18%|
|Google earnings per share ($ - Non GAAP)||7.13||17%|
Google earnings for the last few quarters haven’t lived up to the expectations, especially on the EPS front. On the revenue front, growth has not been disappointing in percentage terms, but Google has missed estimates occasionally. While it is speculated that this could be due to the increased focus on mobile advertising, which has lower CPCs (Cost Per Click), the disappointment has reflected in the stock price, which is now close to its 52 week low.
Source: Google Stock Chart by amigobulls.com
Google Revenue Growth & Profitability
Google revenue of $16.52 billion grew at a healthy 20.5% in Q3 2014. In Q3, Google’s advertising business grew faster than it had in the same quarter in 2013. However, Google has seen CPCs declining on its own properties, as well as network partner sites. With Q4 being the holiday season where advertisers typically ramp up ad-spends, Google will be hoping to see some improvement in CPCs.
Paid Clicks have been driving revenue growth despite falling CPCs. In Q3, Paid Clicks growth was slower when compared to the previous quarters. Google will be hoping for that trend to reverse in Q4.
Google profitability declined in Q3 compared to earlier levels. However, this was largely due to two non-cash expenditures, stock based compensation and patent impairment. Considering that, margins should improve compared to Q3 operating and net profit margins of 22.5% and 17% respectively.
Google Earnings: Q4 Outlook
Google earnings in Q4 are particularly important from multiple standpoints. Google is faced with growing competition in online video advertising from the likes of Facebook, AOL and Yahoo among others. Meanwhile, efforts have been made to improve the quality of ads served, to improve advertiser ROIs (return on investment) and thereby aid Google ad revenue growth.
Possibly as a potential means to take on growing competition in the advertising space, Google has experimented with the Contributor by Google program. Contributor by Google allows users to pay $1 to $3 a month, for an ad-free experience on chosen sites. Hopefully, we’ll get to hear something on that front in the Google earnings call.
Further, in the online shopping space, Google has toyed with the Google Buy button to allow shoppers to complete the purchase within Google shopping, rather than refer the user to the merchant website. It will be interesting to see how Google earnings shape up in Q4.
At Google’s stock price of $510 a share, Google valuations are as follows:
- Google PE ratio – 26.7
- Google Price to Sales ratio – 5.3
Google valuations aren’t expensive at these levels, in fact, if Google earnings do pick up in Q4, the stock could see a significant upside potential.
Estimates of Google revenue in 2015 are pegged at $78.5 billion. Even at the current Google Price to Sales ratio of 5.3, Google valuations indicate a 21% upside potential with a target price of $617 a share.