Schmidt Dumps Google Inc (GOOG) Stock. Is It Still a Buy?

There was a point when Google Inc (NASDAQ:GOOG) was easy to understand. This was when it was simple to just refer to the tech giant as “search giant.” Granted, Google is still the king of search. But those days of measuring the company solely on its search prowess are gone. Google has pushed into smartphones, tablets, operating systems and most recently hardware. This company clearly has ambitions beyond search.

Bears will argue that these goals are scattered. However, just as with its search engine, they also produce results. It’s been three weeks since the company reported its fourth-quarter earnings. Since then, shares have soared almost 15% to reach an all-time high of $786. It’s hard to imagine that the stock may yet seem undervalued.

Google Inc (NASDAQ:GOOG)It seems however, that company insiders may disagree.According to SEC documents filed last Friday, Eric Schmidt, Google Inc (NASDAQ:GOOG)’s executive chairman, who owns 7.2 million shares of the company, plans to sell 3.2 million shares. The company said that Schmidt’s sale is part of a long-term asset diversification strategy. But why now? Should investors interpret this move as an insider “calling the top”? But what exactly did Google’s Q4 results suggest?

With all of the growth comes plenty of angst
There’s never a dull moment with Google Inc (NASDAQ:GOOG). On the one hand, the numbers will startle. But they also introduce plenty of anxiety. For instance, even though gross revenue surged 36% year over year and 2% sequentially, bears argue that the growth seems inflated since some of the revenue is outside of Google’s “core” business. But even if that were a valid argument, when extracting all of the “extras,” Google Inc (NASDAQ:GOOG) still produced 22% growth in net revenue.

Besides, this is despite a 56% drop in Motorola revenue, which missed Street estimates by 25%. And remarkably, revenue surged even with a 6% drop in average cost per click, or CPC, which tracks how much money advertisers pay Google. This was offset, though, by a 24% increase in paid clicks.

Nonetheless, Google Inc (NASDAQ:GOOG) is still the most dominant advertising model in the world. The company is well ahead of Yahoo! Inc. (NASDAQ:YHOO) and Microsoft Corporation (NASDAQ:MSFT)‘s Bing! search engine. And even though Facebook Inc (NASDAQ:FB) has begun to gain meaningful traction, particularly with mobile, Google is strongly positioned to avert near-term threats in the mobile segment. The long term is another story entirely. For now, despite the strong lead that Apple Inc. (NASDAQ:AAPL) and Samsung enjoy in hardware, Google is doing more than just holding its own.

For that matter, Google’s position in mobile devices is arguably more significant today than what it enjoyed in the desktop environment. However, it’s anything but straightforward. That CPC has continued its decline is a major source of angst among investors. And it doesn’t appear to be a quick fix since traffic acquisition costs, or TAC, continue to rise. This is the metric that tracks how much Google Inc (NASDAQ:GOOG) pays to distribution partners.

In the fourth quarter, TAC rose 11% sequentially and 3% year over year. Essentially, Google’s strong revenue growth was aided by (among others) Apple, which Google had to pay for the volume of traffic sent to its site. Meanwhile, Apple has been working hard to remove from it IOS any possible advantage that it has given Google, including YouTube and maps.

At the same time, Apple has been incorporating more Facebook utilities in its devices as both companies are trying to leverage each other to keep their users from venturing outside of their platforms. In other words, it appears to be a concerted effort to weaken Google. But is it working? Google understands what’s going on. And the company’s strategic planning and execution continues to show that it remains focused on one thing — increasing shareholder value. But at what cost?

Case in point: It was glaring that operating expenses surged 42% to almost $5 billion. The good news is that profitability remains strong as net income jumped almost 7% year over year to $2.89 billion. But margins were anything but clear. It’s no criticism on the company, but it’s very tricky trying to decipher Google’s earnings due to its various business segments.

For instance, despite the 6% increase in operating income, operating margin shifted lower by more than 6%. Essentially, Google’s “all inclusive” revenue mix is mainly the cause of the drop. This may or may not be significant since it includes revenue from Motorola, Google Play and YouTube. This might validate some of the criticism among analysts. But does it warrant selling the stock?

There’s still plenty to fix
It’s hard to disparage a company of Google’s size that is still posting record revenue and profits. But as great as this quarter was, it also raised several questions. For example, is the decline in margin a one-time thing, or is it a sign of some underlying weakness in the company’s competitive leverage? Also, how much of the 6% drop in the click-through rate is being caused by Facebook, or was it a byproduct of what has been a tough macro climate for advertisers?

In the meantime, the company is in great hands. Whether or not these concerns have influenced the timing of Schmidt’s stock sales is immaterial. Plus, with the improving situation regarding Motorola, Google’s future remains as bright as ever. I would be a buyer here on this weakness. Investors should expect more good things to come from Google in 2013 and beyond.

The article Schmidt Dumps Google Stock. Is It Still a Buy? originally appeared on Fool.com and is written by Richard Saintvilus.

Fool contributor Richard Saintvilus owns shares of Apple. The Motley Fool recommends Apple, Facebook, and Google. The Motley Fool owns shares of Apple, Facebook, Google, and Microsoft.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!