Will Google Inc (GOOG) Do Better Next Year?

2012 has been a wild year for Google Inc (NASDAQ:GOOG). Its stock price began the year close to $670 per share, and even as the market rose in the first few months of the year the price dropped and was as low as $570 in early July. It then climbed to about $770 three months later before a disappointing earnings release- in both content and in style, with the report being released hours earlier than scheduled- has brought the stock right back to the $670 range, flat for the year.

Looking more closely at Google Inc (NASDAQ:GOOG)’s 10-Q, we see a 19% increase in revenue in the core Google business (which is focused on advertising) compared to the third quarter of 2011 as well as the addition of the Motorola Mobility Holdings business, which is intended to further strengthen Google’s position in the smartphone market. However, that segment seems to be unprofitable, and with a 31% increase in cost of goods sold in the advertising business earnings ended up falling by a total of 20%.

LONE PINE CAPITAL

At a market capitalization of about $220 billion, Google Inc (NASDAQ:GOOG) trades at 21 times trailing earnings. That kind of pricing indicates that the market expects considerable growth from the company going forward. Certainly the decline in net income caused by adding the Motorola business likely won’t be duplicated next year, and even if that business doesn’t improve Google should get some earnings growth out of its search engine related businesses. The forward P/E is 14, which would be a fair- and possible low- price for a large, growing pantechnology company with a strong brand and sizable market share in smartphones and tablets.

Google Inc (NASDAQ:GOOG) had taken the #2 slot in our rankings of the ten most popular stocks among hedge funds in the second quarter of the year, finishing only behind Apple Inc. (NASDAQ:AAPL). One of the funds contributing to this positioning was Lone Pine Capital, which is managed by billionaire Stephen Mandel. Lone Pine, which initiated a position in Google during the second quarter of 2011, increased its stake by 2% between April and June to a total of 1.3 million shares (see billionaire Stephen Mandel’s latest stock picks).

Google’s peers include Apple, Microsoft Corporation (NASDAQ:MSFT), Facebook Inc (NASDAQ:FB), and Yahoo! Inc. (NASDAQ:YHOO). Apple and Microsoft both carry forward P/Es of 9, though in the case of Microsoft it’s important to keep in mind that the release of new versions of Windows and Office will likely temporarily boost earnings as businesses and other customers more or less automatically upgrade. Microsoft’s revenue and earnings were down last quarter from a year earlier, though again this may be because purchases are being delayed. Apple’s pricing is harder to explain, and with that company’s business performing well we thought that the correction in its stock price had presented a good buying opportunity. Read our recent analysis of Apple.

Facebook has been trading around $20 for some time after the decline from its IPO price slowed at about that level. It’s still priced quite high- at 31 times consensus earnings for 2013- and we wouldn’t buy the stock, even though we’re keeping an eye on its financial performance and on its cash hoard. Yahoo’s recent earnings are skewed due to a recent sale, but we’d note that the company’s revenue came in lower last quarter than a year earlier as well as the fact that its forward earnings multiple actually represents a premium to Google (that P/E is 15). We’d avoid that stock as well.

Google Inc (NASDAQ:GOOG) doesn’t look like as good a buy as Apple. However, we could certainly see it make progress in integrating its recent acquisition and coupled with improvements in its core business that could easily push it into “growth at a reasonable price” territory after a quarter or two.

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

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

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!