Google rev­enues and cash flow should keep in­vestors smil­ing

Financial Mirror (Cyprus) - - FRONT PAGE -

Google Inc. (NAS­DAQ: GOOGL) re­ported sec­ond quar­ter 2014 re­sults last week, with the search en­gine be­he­moth reporting ad­justed di­luted earn­ings per share (EPS) of $6.08 on rev­enues of $15.96 bln in­clud­ing traf­fic ac­qui­si­tion costs (TAC). In the year-ago quar­ter Google posted EPS of $4.96 on rev­enues of $13.11 bln.

An­a­lysts were es­ti­mat­ing EPS of $6.24 on rev­enues of $15.62 bln.

This marks the first post-split and du­al­class earn­ings re­port. It is hard to know if the changes will have been en­tirely ac­counted for in the an­a­lysts es­ti­mates be­cause it of­ten hap­pens that an­a­lysts do not prop­erly ac­count for re­or­gan­i­sa­tions im­me­di­ately.

Google also an­nounced that the com­pany’s chief busi­ness of­fi­cer, Nikesh Arora, is leav­ing to join SoftBank as Vice Chair­man and CEO of SoftBank In­ter­net and Me­dia. Omid Kordestani is step­ping in to lead the busi­ness or­gan­i­sa­tion “for now,” ac­cord­ing to the re­lease.

Ex­clud­ing traf­fic ac­qui­si­tion costs (TAC) of $3.29 bln, Google’s rev­enues to­taled $12.67 bln for the quar­ter. The ma­jor­ity of TAC — $2.4 bln — was paid to Google’s net­work mem­bers. An­other $893 mln was paid to dis­tri­bu­tion part­ners and oth­ers who di­rect traf­fic to Google’s web­site.

Paid clicks rose ap­prox­i­mately 25% yearover-year and rose about 2% se­quen­tially, while cost-per-click fell ap­prox­i­mately 6% yearover-year and was flat se­quen­tially. The paid­click rate fell short of an an­a­lysts’ es­ti­mate of 33%. The com­pany’s CFO said: Google had a great quar­ter with rev­enue up 22% year on year, at $16.0 bln. We are mov­ing for­ward with great prod­uct mo­men­tum and are ex­cited to con­tinue pro­vid­ing amaz­ing user ex­pe­ri­ences, with a view to the long term.

Non-GAAP op­er­at­ing in­come to­taled $5.14 bln, up from $4.21 bln in the same pe­riod a year ago. As a per­cent­age of rev­enue, how­ever, non-GAAP op­er­at­ing in­come slipped was flat at 32%.

Other cost of rev­enues rose from 17% of rev­enues a year ago to 18%, and op­er­at­ing ex­penses rose from 34% of rev­enues a year ago to 35% this year.

Given the stock split and the change to a dual-class share struc­ture it’s a bit tricky to as­sess what’s go­ing on with Google. One thing that is go­ing very right is op­er­at­ing cash flow which rose from $4.7 bln a year ago to $5.63 bln in the sec­ond quar­ter of this year. That’s a gain of 20%.

Shares are trad­ing up about 2.5% at $595.22 in af­ter-hours trad­ing to­day. The 52week range is $412.91 to $615.05. Thom­son Reuters re­ported a con­sen­sus price tar­get of around $660.50 be­fore last Thurs­day’s earn­ings re­port.

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