Monday, 21 October 2013 09:53

As My Google Thesis Comes To Fruition, Prepare To Witness A Paradigm Shift In Computing AND Advertising Featured

I'm going to take this time to demonstrate what I consider excellence in forensic and fundamental analysis. As most know by now, Google blew out the sell side analysts forecasts last Thursday to surge 18%+ to $1,011 per share. They beat on both the top and bottom line even as a major shift to mobile with its lower cost per clicks scared most analysts into forgoing the power of the Google engine. Well, my subscribers knew better. Reference Google Q2 2013 Update: Valuing Possibly The Most Powerful Co. In The World?:

Google has almost consistently outgrown the adoption rate of web advertising. What does this mean? Well, it means that although Web advertising is getting bigger and more popular as a slice of the total advertising pie, Google is getting even bigger and more dominant in the space – not less. Google is beating competition back even as the market grows! 

Google ad growthGoogle ad growth


That's right! I easily informed all that Google is growing its ad business faster the market is growing, hence Google can outrun margin compression, and it has - reference Google Shares Jump To All-Time High On Q3 Earnings Forbes‎: 


Despite concerns over declining ad prices, Google GOOG +0.49% beat expectations in thethird quarter in both profits and revenues.

The search giant earned a profit before certain costs such as stock compensation of $10.74 a share on a 12% rise in revenues, to $14.89 billion. Net income was nearly $3 billion, or $8.75 a share.

Google’s shares were rising fast, by more than 6%, in extended trading immediately after the earnings announcement. The stock had fallen about 1%, to $889, in today’s trading.

Analysts had expected earnings before certain costs such as stock compensation to rise 15% from a year ago, to $10.35 a share. Net revenues were expected to rise 5%, to $11.9 billion (gross revenues of $14.8 billion), a big slowdown from even a quarter ago.

Ad prices, measured by cost per click, fell 8% from a year ago and 4% from the last quarter. In the second quarter, prices had fallen 6%, so if anything, the price declines are rising. Paid clicks rose 26% from a year ago and 8% from the second quarter.

The bottom line is that while ad prices continue to decline, that decline is offset considerably by more people clicking on the ads. “Clicks were up much more significantly than we expected,” Roger Barnette, president of search marketing firm IgnitionOne, said in an interview. However, 12% revenue growth is down yet again, the fourth straight quarter of declining sales, which were up 31% as recently as the first quarter.

There is much, much more to this story, though. My valuation numbers from last quarter have not changed much, but my foresight into the future has grown demonstrably, and I will be putting opinion out and investment opportunities accordingly over the next week - for both public and private equity investors. In the meantime, my paying subscribers should review the following valuation notes - as appropriate.

To demonstrate the level of foresight of BoomBustblog research, I present below is a 5 page excerpt of the 69 page Google forensic analysis that I released to professional and institutional subscribers three years ago. 

Google Final Report Sep 29 Page 01

Google Final Report Sep 29 Page 02Google Final Report Sep 29 Page 03Google Final Report Sep 29 Page 04Google Final Report Sep 29 Page 05Google Final Report Sep 29 Page 06Google Final Report Sep 29 Page 07

hese commands take even more precedent when viewed in context of Google's biggest launch of the year, Glass....

Google is in the final phases of launching a product, a product that is to personal productivity as the smart phone was to computing. The company is up about 10% since that video about a month and change ago...

From the latest quarterly valuation update for BoomBustBlog subscribers (click here to subscribe): 

BoomBustBlog releases its updated valuation on Google Inc. in the 2nd quarter of this year. The stock has registered a +47% return since our last valuation update in March 2012.

Google continues to play a dominant-leader role in the online advertisement and search market. Its market share in online advertisement has been consistently growing not only in the US, but also in the other geographies. Besides being a leader in the online advertisement market, the company has been continuously taking initiatives to broaden its product and service offering. The last year has seen a number of (now) well-known products.

The continuous endeavor to diversify product and services through sustained efforts in research & development forms an important component of our valuation. While we expect that the company will continue to grow its revenue off its leading space in the advertisement and search market, its ability to diversify its future revenue in different streams is a key to the current valuation. We therefore expect its revenue to grow along a more diversified route. This statement requires some explanation, for most still don’t seem to understand the Google business model. Google monetizes the vast majority of its initiatives through ad revenue. This causes many to label Google’s various ventures as a failure, due to being misled by cost shifting. Google cost shifts through a myriad of products, disrupting entire industries, then monetizes the results through “Ad Revenue”. Thus, looking for direct revenue streams from Android is fruitless in comparison to searching for strength in ad revenue bolstered by Android.

So how do I know if my thesis on this revenue diversification is on point. I instruct all to simply look at...

Google’s ‘other’ revenue

The nondescript "Other" revenue line... 

•“Other” revenue in 2009: $762 million, or 3.2% of $23.65 billion in total revenue

•“Other” revenue in 2010: $1.09 billion, or 3.7% of $29.32 billion in total revenue

•“Other” revenue in 2011: $1.37 billion, or 3.6% of $37.9 billion in total revenue

•“Other” revenue in 2012: $2.35 billion, or 4.7% of $50.18 billion in total revenue

The 2012 numbers are not inclusive of the Motorola Mobility operations. The Motorola revenue was approximately $4.14 billion on top of the other “other” revenue. For those who are not paying attention, Google's non-advertising revenue was $6.49 billion last year — or 12.9% of total revenue and growing like a weed!!!

How fast is the growth acceleration in the "Other" category? Q3 “other” revenue grew 85% compared with the year-ago period to $1.23 billion. That means that Google nearly doubled this revenue from last year, or put another way it's half of the entire total in calendar 2012 - made in just one quarter. If one were to look at the growth from a longer historical perspective, 2 years ago the “other” revenue total for third quarter 2011 was $385 million. That means that Google has produce MORE than 3x the revenue it did two years ago! Wait until Glass is released!

Expect the sell side to finally catch on to this, and when they do, expect valuation models to change accordingly.

Last modified on Monday, 21 October 2013 10:38

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