Google released its second quarter numbers post the bell yesterday, they were very good. Revenues for the quarter were US$16-billion (an increase of 22%), operating income was US$4.26-billion, accounting for around 27% of its revenues. Nice. On a non GAAP EPS, excluding stock-based compensation (SBC) expense (what the hell?) that number was US$6.08.
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This is still an out and out advertising business. The volumes, or number of paid clicks increased 25% in the second quarter, two percent over the prior quarter. The cost per click, or the price that Google gets decreased six percent over the first quarter this year and seven percent over the comparative quarter last year. Traffic Acquisition costs, or the money that is paid to the Google partners (advertising sharing), was nearly 10% higher when compared to the corresponding quarter a year ago.
Cash on hand? A whopping 61.2 billion Dollars, they generated nearly three billion Dollars of cash in the quarter. As a percentage of the 395.7 billion Dollar market cap, that is 15.4 percent. Of course Google still does not pay a dividend. As they are a growth company (they hired around 2200 people over the quarter), meaning that costs are not exactly front and centre. They spent more on R&D, 14 percent of revenues, than JNJ, who spend just a little less than 12 percent. Astonishing how they encourage their workforce to express themselves, to find the next big thing. It is still just an online advertising business, that is it.
I think that this is one of the most fabulous investments that you can make, of course not for income and it certainly on a forward basis (modelling around 21 and half Dollars earnings) means that the company trades forward on 27 times earnings, this year. No dividend, quite expensive. And a year further forward, because earnings are expected to grow faster over the next two years. Quite quickly the forward multiple reduces to a 22, earnings for 2015 as per the analyst community are expected to be over 27 Dollars for the year.
This businesses revenue mix has also changed, it is now less of a US business and more of an international business, as per the graphic from the presentation slides:
Almost a percent per quarter shift, as a shareholder you want more geographies, more languages, more businesses and more customers from all around the world. The internet of things, in which everyone will be connected will of course have many advertising platforms, from your fridge, to your car, to buildings, to everything in-between. Fibre is going to be big too. The company is certainly teeing up for all its other businesses the General Electric of the 21st century is a definite must own for stockholders.
This article by Sasha Naryshkyine is adapted from the Vestact newsletter and republished with permission.
