GOOG: Profit up 92%, revenue 70% - Feel the power
By Richard Koman - October 19, 2006
Google reported unbelievable growth in the third quarter, with revenue up 70 percent to $2.69 billion and profits up 92% over the year-ago quarter. (Financial Times). Net income more than doubled, from $381.2 million to $733.4 million.
Virtually all of Google's income comes from advertising, either on its own sites - revenues up 84% - or on its ad networks - revenues up 54% but representing a flat piece of the pie.
Contrast this with Yahoo's lousy numbers and falling advertising shares and the writing is on the wall. Yahoo cannot compete. It's new advertising engine changes nothing.
Marshall Kirkpatrick at TechCrunch notes:
Fifty percent? Those are near-iPod numbers for market dominance. Think IE7's hard-wiring of search to Microsoft's search engine is going to make a dent? Forget it. Google rules search-based advertising. Can you imagine a world in which virtually all advertising dollars flow to Google?
Yes - it will be like dollars flowing to Microsoft in the PC era. Except that Microsoft dominance allowed an ecosystem in which applications developers and hardware makers also made tons of money. Google will have to create as rich an ecosystem, in which content providers are really partners and not just fodder for Mountain View's currency printing press.
From TechCrunch:
Larry Page said Google has the greatest diversity of advertisers in the world because it’s easy to get involved in search, video and soon audio advertising. Page also highlighted the addition of coupons to Google Maps.
The future remains some what unclear with an office strategy that could succeed or fail, a video strategy that will face legal challenges and the first big competition in contextual advertising ramping up - but Google is looking well prepared for dealing with all of those challenges. While the rest of the big tech companies are experiencing relatively turbulent times, Google put the numbers on the table today to prove that they are going strong.
Hmm, from where I sit, GOOG owns text-based advertising, they own the single biggest video content site, they putting together the pieces of a Microsoft-free computing environment. The major danger, as Tom said yesterday, is that they will put their own (willing or unwilling) partners out of business.
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October 19, 2006 | Permalink | Comment
| Category: NewsWatch | Subscribe to SVWNielsen//NetRatings came out with new numbers today finding that Google’s market share in search has grown 24% over the last year to 50% of the total market. Yahoo! grew 12% to 23% market share and MSN/Live dropped 8% to a 6% market share.
Sergey Brin started his discussion with the addition of historical archives in Google News, video search, Google Apps for Your Domain, and Google Docs. Brin said in response to questions that integration, or “Features not Products” is an important direction the company wants to move in for the future. Which is it? Diversity is our strenght or product overload? Maybe that just means we’ll see fewer new Google products, but they are glad they have as many as they do.
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Lets keep all media hype away and quick short covering amusement following it and check out Google's development in recent Q in order to try to understand its valuation compare to its piers. Upside now is known and everybody is on Buy side with price target 600 (+30%). Shorts are killed and short ratio is less than one day trade, no easy money for upside after yestoday short covering left, somebody has to start to buy into this story at this 460 level. First Google came with Rev 2.69 billion which is less then 2.76 which I have projected from PWC predictions of 16-18 billion online ads market in 2006 with Google Share of 40.5% of this market in Q3 (seasonal trend applied) So, first Google did not manage to increase its market share in Q3. Second, lets look at earnings GAAP ($) Q1 1.95, Q2 2.33 (+19%), Q3 2.36 (+1.3%!?) Earnings growth dramatically slowed. Third, revenues: Q1 2.25, Q2 2.46 (+9.3%), Q3 2.69 (+9.3%!?) math's precision or can I smell some cooking oil here? 44% of revenue is coming from international business. All hitfarms are located in pure "international "destinations India, China, Malaysia, Russia etc. Revenue growth is slowing with increased risk of cutting back on advertisement due to economy slowdown and click fraud awareness buy the customers. Fourth, Net cash from operations Q1 0.825 (37% of Rev), Q2 0.841 (+2% 34% of Rev), Q3 1.0 (+19% 37% of Rev) Capex Q2 0.699 (0.319 Real eastate 0.380 "normalised"), Q3 0.492 (+29%!) So Google Capex increase is really much bigger then their Rev growth 29% vs 9.3% with constant Net cash from operations at 37% Rev, Free Cash Flow is under compression. Total Free Cash Flow for nine months is 1.112. If we will project Rev growth for Google at 12% for Q4 vs 9.3% for Q3 they will make Rev Q4 3.0 (less then based on PWC and 41% of market 3.2) Net cash from operations at 37% of Rev 3.0 will be 1.1, if we apply 20% growth for NCFO in Q4 (vs +19% Q3) we will get 1.2 so lets assume NCFO will be in the middle = 1.15. What about Capex? I think it will be increasing dramatically with moving into video: broadband, storage, new blades, electricity. But if we even aply same growth to capex as to Rev +12% (they said it will be bigger then Rev growth, Q3 was +29%) Capex Q4 will be 0.551. So, Free Cash Flow in Q4 will be NCFO-CAPEX=0.6 and total FCF 2006 will be 1.712 If stock will not move from 460 we have MC=142 billion MC/FCF=83! YHOO is projecting FCF 1.35 in 2006 (lowered recently) with MC at 32 their ratio is MC/FCF=24 If the Google will manage to make even 2.8 EPS in Q4 (+19%) (do not forget annual charge for all those "to be expenced option related expences which they did not account in past Qs) GAAP 2006 will be 9.44. So with GOOG at 460 we have company with 2006 est MC/FCF=83, P/E=48.7, P/S=14.2 with slowing growth in EPS and Revenue and most important with dramatic compression in FCF. YouTube will bring dilution, much more CAPEX in Video Game and No revenue so far. What is the more reasonable valuation of Google: if we give GOOG MC/FCF=40 (69% over YHOO for leadership and "strength") MC with 1.712 FCF must be 68.5 billion with 310 million shares outstanding before YouTube diluton it is...221 share price. When MR Market will figure it out I do not know, but I am testing the water with March 2007 460 puts.
http://sufiy.blogspot.com/
Posted: October 21, 2006 1:03 PM