Google's growth continues to impress as it wraps up its 2013 earnings

For those of us whose idea of fun includes reading financial reports from tech companies, Google posted its fourth-quarter 2013 results on Thursday. And because Google generates the vast majority of its revenue by selling advertising, it should come as no surprise to you that discussion of Android was not a focus of the call. When I write these quarterly results summary articles, I’m doing so to share my thoughts on Google the business and relate the results back to the stock in a way that helps newbie investors understand a bit more about long-term investing. I also own a bunch of Google shares. End of disclosure.

Google’s Q4 results, in a nutshell, were solid enough to send the stock higher in after-hours trading Thursday night, which means Wall Street loved the numbers. On Friday morning the stock was up about 3 percent, while the broader indices (i.e. Dow Jones, S&P 500 and NASDAQ) are down.

Let’s dig into the numbers a bit and then discuss the longer-term picture.

Revenue for the whole business was $16.9 billion, up 17 percent year over year. This, of course, includes the money-losing Motorola division, which is shrinking (and about to be jettisoned anyway). So what I care more about is the pure Google business, which pulled in $15.7 billion and grew 22 percent year over year. For a company the size of Google, this is impressive growth. Can you imagine Coca Cola or Proctor and Gamble growing that much, that fast? Neither can I.

There's nothing wrong with more clicks for less money.

Two-thirds of this $15.7 billion in revenue came from Google-owned sites. Obviously the big one is search — — and I’m guessing the second biggie is YouTube. Did you know YouTube is the second biggest search engine in the world (after Google)?

Another 23 percent of Google’s core revenue comes from partner sites. Mobile Nations is a good example. Some of the ads displayed come from Google’s inventory (i.e. Adsense), and Google shares the revenue generated from ad clicks with these partner sites — Android Central, CrackBerry, etc. This is an area where I think we’ll see increased competition in the future.  Facebook, Twitter, Amazon and others likely will (and, indeed, are) ramp up their advertising tools to let website owners pull in ads from their inventory, too.

Analysts pay a lot of attention to paid-click metrics, and for good reason. The amount of money that Google can bring in, per click, is an important trend. It’s not so important in any particular quarter, and quite often Wall Street freaks out over minor drops in revenue per click when Google clears out crappy advertising from its system. But any trends here obviously matter to the long term health of the business. In Q4, Google generated 31 percent more paid clicks year-over year, but the cost per click declined 11 percent.

This decline in cost per click has become a trend. More often than not, Google sells clicks for less money, not more. So is this an issue? I don’t think so. If you look at what’s happening under the covers, Google is seeing very strong international growth. If you exclude the U.S. and UK from sales, the growth rate was 33 percent. Most of these international markets generate less revenue (per click) than developed markets. We see the same thing when we look at Facebook, which also reported results earlier this week. Specifically, Facebook brought in more than $6 per user in the last quarter among its U.S. and Canadian user base. But, for example, in Asia the average user brought Facebook only 95 cents. My conclusion is that online advertising is just not as profitable (per user) in emerging markets today. But the margins are still incredibly high and it would be dumb to ignore global growth in order to show cost per click numbers that look more impressive.

Keep a close watch on what Facebook, Twitter, Amazon and others are doing with ads, too.

In other words, I care about total profit for the company, not average profit per user, no matter what Wall Street worries about on any given day.

Earnings per share for the quarter were $12.01 and that wraps up 2013 with total EPS of almost $44. Analysts are modeling earnings of about $52 this calendar year, meaning that the stock trades at 22 times earnings. With the growth rate Google has been experiencing, I love the idea of holding onto the stock for another decade. Longer term I think a lot of ad dollars currently spent on TV, radio and print media will shift towards online campaigns.

Google and Facebook are probably the two biggest beneficiaries of this, and I see Google as a very reasonably priced stock considering the growth potential from existing ad platforms, and then supplemented by new innovations on Android, Chrome, YouTube and even Google Glass.


Reader comments

Stock Talk: Google keeps steamrolling ahead with strong Q4 results


I would love to know how their devices business (minus Motorola) is doing. I want to know if their Nexus devices are profitable, break even or a loss to the company.

they're selling. direct profit on hardware, if any, is gravy. the real money is made in search and services.

Chromecast, Google Play, Nexus 5 and Google Wallet had a very good 2013

The numbers are out, confirming that, yet again Google's rolling in the dough. And on its Q4 investors call, Google informed us that, while ads still butter its bread, other sources of income are growing in importance -- non-advertising revenue essentially doubled in 2013, with $1.65 billion coming in the last three months, not counting Motorola, of course. That increase is due partly to a strong holiday season this year, powered by sales of Nexus devices (particularly the 5) and Chromecasts, and the Play Store continuing to move more apps and games.

Ahh yes. I read it but didn't comprehend it. I just hope there is less of a chance of the rumors suggesting nexus devices going away are true if they are profitable for google.

don't believe the BS from the haters.


The Nexus 5 competes directly with every other Android phone on software features, not just on hardware and price. Lockheimer tells us that Google doesn't consider the Nexus to be "a hobby, we take it really seriously, and there's a growing number of people who are actually buying these." For the first time, the rest of the Android ecosystem might have to start taking the Nexus seriously, too. Google's services truly do give the Nexus 5 an edge, and the thing about edges is that they can cut.

I saw the day after the announcement of the sale of Motorola that Google stock dropped on a bar graph 20-50 points. I found that quite odd being the day before Google's earnings call.

“We had great momentum on the Nexus 5 and Chromecast,” Google CFO Patrick Pichette said, describing the Nexus 5 as a “very strong” performer during the quarter. However, he did not reveal actual sales numbers for any of these two devices.

From the looks of it, Google seems to be getting better and better at selling hardware, including Nexus devices. Interestingly, the company is rumored to kill off the Nexus family in 2015, although that’s yet to be confirmed in any fashion by the company.

He's just trying to get Android Central to pop up in google searches when people type that in.

It's all coming into focus.. This is why there is no Nexus-10 2nd Gen.. and there never will be.. it's "Faze-Out" time for Nexus devices they will take another device away this year and the final one in 2015.. by January 1, 2016.. The Nexus Line will be History.

This will push GPE devices for other manufacturers. So we'll get a nexus device, just in a full price Hero device from HTC and Samsung and LG most likely.

So how do you do this "Google's growth continues to impress as it wraps up its 2014 earnings"

We are just finshing the first month of 2014, so how in the World are they wrapping-up 2014 earnings??? going out of business????? skipping the remaining 11 months :)

So glad adblock exists for Facebook etc. Honestly some sites are riddles with it to the point where it seems loaded but it's not so you click a certain area and boom ad.

Posted via Android Central App

"In Q4, Google generated 31 percent more paid clicks year-over year..."

I'm sure you guys (Android Central, et al) don't want to hear it, but I've NEVER clicked on an ad and I don't even know anyone who has ever clicked on one. Who ARE those people who click on them?

But, the increase in "paid clicks" is fine with me. I saw the writing on the wall a bit ago and finally bought some Google stock. So, now, I, for one, welcome our new data overlords.

Japan is an "emerging market"? I can't even merit a guess as to what the fuck you were thinking when you wrote that.

Posted via Android Central App

Hodan, some education for you:.  Asia is what we call a "continent".  Japan is what we call a "country".  I'm sorry life seems so difficult.


You care about total profit, not average revenue per click, regardless of what Wall Street says?

You're a pretentious idiot that knows nothing about stock price and valuations.

I hope this rash of new trash bloggers is not of your choosing Phil, only because I really had fun on this site the last couple of years. It was quality over quantity. Now it's link bait articles rife with poor grammar and ridiculous conclusions. Not to mention writers with stock in the companies they cover. You worked in print! You know that's an ethical violation!

Posted via Android Central App

Tell me what you really think of me.  Come on ... don't hold back.

FYI for others: You can tell when someone has no basis for their argument when they attack you on a personal level without any discussion of the argument that supposedly makes you an idiot.  Watch for it.  Very common among trolls and those who don't have any knowledge on which to add value.