Google

Third-quarter earnings show Wall Street pleased with Google's continued growth 

Google’s third-quarter results were published on Thursday, and I had a chance to look into the results this morning. Some of the key financial figures were already covered in Thursday's brief post on this, so I’d like to focus on what I thought was interesting out of the conference call.

As the headline suggests, Google’s growth remains very strong. It posted $14.9 billion in total revenue, including the Motorola segment, which still loses a couple hundred million dollars per quarter. But the ex-Motorola revenue numbers (called the Google segment) are up huge. Specifically, the business is up 21 percent year over year. (For the sticklers, this number is on a constant currency basis, so it ignores FX effects, and I think it’s a better reflection of real growth.)

There’s nothing too surprising in the financials, aside from the impressive revenue growth. A good revenue quarter and rising operating margins mean solid overall profit, which has Wall Street excited. Remember that stocks tend to move based on short-term results (and short-term thinking), so none of this is particularly due to the strength of Android, or Chromebooks, or Google Play revenue — despite their importance in the grand scheme of things.

Google repeated September's news that it has activated more than 1 billion Android handsets and is still activating them at the impressive rate of 1.5 million per day. That remains up from 900 million total device activations in May. 

Cool products not withstanding, Google remains a search and advertising company, first and foremost.

Anyway, Google’s main business is selling ads. That business is quite strong, and is responsible for most of the growth. By one estimate, Google holds 3 percent of the total advertising market. Considering how important the online segment is, and how much money is still spent on print advertising, most experts believe there are still tons of ad dollars to move online. Google will benefit from this. That means more money to plow back into innovative R&D projects.

I noticed that Google says 40 percent of YouTube traffic is now coming from mobile users. That’s pretty amazing considering it was only 6 percent two years ago. Also on the mobile front, Google is pretty excited about the success of some customer ad campaigns where "click to call" is used. Apparently mobile ads that target click to call are highly successful. Here’s a question for those more familiar with the inner workings of the OS than I am: Given that Google has full control of Android (versus access only to APIs on iOS), can it do a better job of monetizing eyeballs with its own OS? I’d love to see some discussion on this in the comments. 

So given the growth that Google just posted, the stock has pushed through $1,000 per share for the first time. As of market close Friday, Google is worth $337 billion. Apple is still worth more, at $462 billion, but most of this difference can be explained by Apple’s enormous $147 billion in cash versus “only” $56 billion for Google.

I’m a shareholder of both companies. I’m bullish on both stocks. If I absolutely had to pick only one of the two stocks to hold onto, I think it would be Google. I love their control of online advertising, dominance in social video, and dominance in mobile computing.