Monday, 24 January 2011 13:13

Google 4th Quarter Performance: Strong Performance, & Better Yet Healthy Investment Into The Business

Additional evidence of Google being in the forefront of the convergence of media, telecomm, the Web and computing (a position that may very well be ephemeral, but a pole position in which we feel Google currently occupies), executing along nearly all of its major business lines as well as its key entrepreneurial pursuits have been phenomenal as it succeeds in knocking the ball out of the park again. I turned very bullish on Google in the summer of 2010, while it was trading in the $400s and have invested a significant amount of resources in analyzing this company's prospects (see Navigating BoomBustBlog Subscription Material To Find The Google Valuation Drilldown).

I believe most analysts and investors still fail to understand the ramifications of Google's longer term investments. This is exemplified by Google being able to perform so far past analysts estimates for two consecutive quarters despite explicit evidence that they have both expanded their core business and successfully created several additional, distinct and diverse, multi-billion dollar business lines (see Google’s 3rd Quarter Operating Results: The Foregone Conclusion That Was Amazingly Unanticipated by the Street!!!). Kudos go out to management for having the balls to think long term as a public company in an environment where quarterly results are the be all and end all. It is paying off.

Google's Q4, 2010

Revenues have shown a very healthy quarterly jump, mores so than in quite some time. More importantly, Google is starting to grow its "other" category, namely its entrepreneurial business into a material revenue stream. We believe the success of said diversification will lead to a more stable, more valuable enterprise.

Economies of scale are truly coming into play as TAC (traffic acquisition costs) decrease on increasing revenues.

Despite decreasing TAC on increasing revenues, S&M has increased. This can be viewed negatively or positively. If Google is paying more to move product, and as a result are moving more product, then Google's growth will take a more linear path - basically, they are buying their growth, even if not necessarily dollar for dollar. We don't believe this is the case, for you can literally see traffic acquisition costs shrink as revenues grow. Google is attempting to grow web assets organically, and has turned the spigot on in order to drive the requisite traffic. Not all of these ventures have panned out in the short term, ex. Google Buzz and Google Wave.

Non-GAAP margins (excluding stock-based compensation) have remained constant Q over Q, but 1% less than two quarters ago. Considering the rapid investment pace of Google, this is acceptable, although investors should want to see better.

Subscribers should reference our the BoomBustBlog subscription document, file icon Google Final Report for the full valuation and analysis. There is a tutorial posted to get the full benefit of the tools that we have offered for Google in Navigating BoomBustBlog Subscription Material To Find The Google Valuation Drilldown. Google's share price has increased substantially since our initial posts and research on it and as such careful attention to valuation should come into play. As excerpted, from the afore-linked post:

Page 57 of the analysis shows a sensitivity table which outlines the various scenarios that can come into play and how it will change our outlook and valuation opinion.

Professional/institutional subscribers can actually access a subset of the model that we used to create the sensitivity analysis above to plug in their own assumptions in case they somehow disagree with our assumptions or view points. Click here for the model: Google Valuation Model (pro and institutional). Click here to subscribe or upgrade.

The Creatively Destructive Pace of Technology Innovation and the Paradigm Shift known as the Mobile Computing Wars!

  1. There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All
  2. The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift
  3. An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught
  4. This article should drive the point home: 
  5. A First in the Mainstream Media: Apple’s Flagship Product Loses In a Comparison Review to HTC’s Google-Powered Phone
  6. After Getting a Glimpse of the New Windows Phone 7 Functionality, RIMM is Looking More Like a Short Play
  7. RIM Smart Phone Market Share, RIP?
  8. Android is gaining preference as the long-term choice of application developers
  9. A Glimpse of the BoomBustBlog Internal Discussion Concerning the Fate of Apple
  10. Math and the Pace of Smart Phone Innovation May Take a Byte Out of Apple’s (Short-lived?) Dominance
  11. Apple on the Margin
  12. RIM Smart Phone Market Share, RIP?
  13. Motorola, the Company That INVENTED the Cellphone is Trying to Uninvent the iPad With Android
  14. Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space
  15. More of the Android Onslaught: Increasing Handset Revenues and Growth
  16. The BoomBustBlog Multivariate Research in Motion Valuation Model: Ready for Download
  17. The Complete, 63 pg Google Forensic Valuation is Available for Download
  18. iSuppli Continues to Validate BoomBustBlog’s Original Thesis: Android as the Viral Game Changer!
  19. BoomBustBlog Research Hits Another One Out the Park! Google up nearly 10% after hours, true blowout earnings unlike JPM
  20. As I Warned in June, DO NOT DISCOUNT Microsoft in This Mobile Computing War! Their Marketing Campaign is PURE GENIUS! and it Appears as if the Phone Ain’t Bad Either
  21. Reggie Middleton Wasn’t the ONLY Openly Apple Bear in the Blogoshpere, Was He?
Last modified on Monday, 24 January 2011 13:19

7 comments

  • Comment Link Woodworking Blog Tuesday, 25 January 2011 20:51 posted by Woodworking Blog

    Self Contained Keyboard...

    [...] vie, you need the iTune. Try to transfer a picture from another phone through th [...]...

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  • Comment Link Reggie Middleton Tuesday, 25 January 2011 06:09 posted by Reggie Middleton

    Your point on Microsoft informally sanctioning pirating is right on point. The allowed widespread pirating of DOS, as well as Windows 1,2, ans 3, and did not make any real attempt to stem the flow until after Windows 3.1. Windows (1.0 or 2) was nowhere near the best GUI overlay nor was the DOS/Windows combo the best OS solution. Geoworks was miles ahead in functionality, usability and tech specs. The result was MSFTs strategy was clear though, widespread adoption, and vendor lock in. The same can be true of Android, we shall see.
    Android is actually one of the better OSs, unlike Windows which had to scale up.

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  • Comment Link Onsen Tuesday, 25 January 2011 06:02 posted by Onsen

    It is like going back to the 80s when Apple was a closed system for amateurs while Microsoft was for business. When developing, Microsoft turned a blind eye to the wide-spread copying of its DOS system. The final cost of the software is not the software itself, it is the amount of time to learn the software. With the large pool of people who got used to the DOS command and the easy availability of pirated and packaged softwares, the DOS system dominates the whole market. Apple became a fringe product.

    A closed system brings a lot of inconvenience to its users. I cannot just plug my iPad, iTouch or iPhone into a computer and access it through the mass storage. iTune is a nightmare. Try to delete a movie, you need the iTune. Try to transfer a picture from another phone through the bluetooth, forget it. Try to see the Flash presentation on iSomething, forget it. This kind of system is suited for kids and little girls, housewife who may not want to tinkle with the stuff. It is like the game system, a closed one. Please tell me which game system has succeeded and still thriving today. This is long term view. The present excitement only last until the competitor catch on.

    The objective of the argument here is to find out whether Google will win in the battle. If Apple still act as the big brother, it will surely lose. Android is not the truly open system as compared to Maemo or Meego. So, there is still a way to go to how good Meego can deliver. But for Apple, I have no hope on it.

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  • Comment Link Reggie Middleton Tuesday, 25 January 2011 03:16 posted by Reggie Middleton

    Many customers prefer closed systems because they are easier to manage with an IT staff and/or external customer support. Open systems are not easier to breach. There are more open script systems running on the web than closed systems, by far, yet the closed ones are breached regularly.

    I have been dealing with computer systems since that little self contained computer in a keyboard from Apple back in the '70s, and I have seen no evidence of your assertions.

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  • Comment Link NDbadger Monday, 24 January 2011 22:46 posted by NDbadger

    Not so clear. A closed system has security benefits. The open system is considerably easier to breach, so many customers may prefer the closed system.

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  • Comment Link Onsen Monday, 24 January 2011 19:33 posted by Onsen

    If mobile computing or shall we say, cloud computing is the future, then Google's position in giving out the free Android will win it all. Apple is a closed system. It's smoothness and intuitive layout are second to none. However, these are really not that important because others can copy or improve on the hardware and software. At the end, it is the operating system that counts. In this aspect, Android will come out way ahead of Apple in a winner-take-all age.

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  • Comment Link Enyibinakata Monday, 24 January 2011 17:36 posted by Enyibinakata

    What will be the effect of Eric Schmidt's depature; Can Larry Page maintain this momentum ?

    Can they continue to keep Apple at bay ?

    Lets see what happens.

    Thanks.

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