Some people don't understand Google
What analysts say:
- Buy, sell, or waffle? A whopping 38 analysts are tracking the Big G every day, and they seem to like what they see. There are three "hold" ratings and two "sells" among them, and the other 33 want to buy this stock. The tenor in Motley Fool CAPS is a bit different -- there, Google only recently climbed out of the one-star cellar to add a second star, and only 68% of 5,560 investors with an opinion give Google a thumbs-up.
- Revenue. It seems $2.68 billion would satisfy the average analyst, and that would be 60% more than the $1.67 billion of sales seen last year.
- Earnings. The consensus estimate is $3.59 per share, 44% more than the year-ago total of $2.49 per share.
What management says:
If you're concerned about Google losing focus while it goes after every left-field opportunity you can think of, well, you're not alone. CEO Eric Schmidt wanted to calm your nerves a bit in the last earnings call.
"Sometimes I worry that we spend so much time talking about all the new things that we don't focus as much on the core business," he said, "especially in our marketing and messaging. In looking at the quarter, the most important message is that our core business is very strong. It is the core business that is driving our success. Core services are as vital and vibrant and innovative as they could possibly be."
What management does:
Revenue growth is slowing down to almost-sane levels, but some very nice net margin expansion counterbalances that and keeps earnings on the straight and narrow hypergrowth path. Keep doubling earnings every year for five years, and you'll turn today's $2 billion a year into $64 billion annually. To put that number into perspective, the current record-holder is Exxon Mobil
Scale the target back to 40% annual growth for five years, and you'd land at $10 billion, with only 30 public companies doing better than that today. Nobody you'd recognize, I'm sure -- just Microsoft
|
12/2005 |
3/2006 |
6/2006 |
9/2006 |
12/2006 |
3/2007 |
|
|---|---|---|---|---|---|---|
|
Gross |
58.1% |
59.0% |
59.6% |
60.2% |
60.3% |
60.3% |
|
Operating |
38.0% |
38.2% |
38.1% |
38.3% |
38.2% |
38.0% |
|
Net |
23.9% |
23.7% |
25.2% |
26.0% |
29.0% |
29.0% |
|
FCF/Revenue |
26.4% |
24.0% |
16.9% |
16.6% |
15.8% |
15.2% |
|
Growth (YOY) |
12/2005 |
3/2006 |
6/2006 |
9/2006 |
12/2006 |
3/2007 |
|---|---|---|---|---|---|---|
|
Revenue |
92.5% |
88.1% |
83.3% |
77.5% |
72.8% |
68.4% |
|
Earnings |
267.2% |
139.7% |
113.5% |
86.5% |
110.0% |
106.5% |
One Fool says:
Excuse the name-dropping exercise above, but it was done for a reason. Yes, doubling earnings annually for five years is difficult and would be an amazing feat for a company Google's size. But it can be done. JPMorgan Chase
Online advertising alone won't bring Google to that level, of course. That's why the company is branching out into traditional media, too, starting with radio and newsprint ads. Five years from now, we might not think of Google as a search engine at all anymore, though the core mission today remains a quest to organize and present all the data that's fit to print. But "omnimedia advertising giant Google" has a very nice ring to it, don't you think?
You'll see. The transformation has only just begun. And as enthusiastic as the analysts seem over Google as a buying opportunity, I think they still don't have their earnings targets set high enough this time.
Microsoft and Wal-Mart have something in common besides massive profits -- deep discounts. That's right, they're both official Motley Fool Inside Value recommendations. JP Morgan Chase is an Income Investor pick.
Fool contributor Anders Bylund is a Google shareholder but holds no other position in any of the companies discussed here. That Kool-Aid sure was tasty. You can check out Anders' holdings if you like, and Foolish disclosure will always be there for you, even when the doubters and the haters crawl out of the woodwork.
