How Did Google Stomp the Market In 2013?

Google (NASDAQ: GOOGL  ) has totally crushed the market in 2013. Shares of the online search and advertising giant have soared over 50% higher year to date, leaving the S&P 500 and all of its major rivals behind.

How did Google pull off such a rewarding year?

First of all, Google's gains in 2013 weren't pulled out of thin air. Investors actually reacted to years of quiet growth that had gone unrewarded. Check out Google's revenue and earnings growth over the last five years:

GOOG Chart

GOOG data by YCharts.

These trends continued in 2013. Google is currently growing sales at a 24% annual run rate while net income is back to double-digit growth. This is the new normal for Google, following a 2012 where revenue growth was boosted but earnings held back by the $2.5 billion buyout of Motorola Mobility.

The handset builder came in with respectable revenue but negative operating income, and these metrics really haven't changed under Google's tutelage. This is one area where Google could stand to improve its otherwise excellent operations. In the recent third-quarter earnings call, Google CEO Larry Page said that Motorola's product quality has improved since Google took over the reins, but the distribution model needs a serious overhaul.

But Google makes up for its disappointing Motorola results elsewhere. There are over 1 billion Android devices in the world, driving mobile search traffic to the Google ecosystem. YouTube's pre-roll video ads are growing 75% year over year and 40% of YouTube's video traffic goes to mobile devices. The cost per click on Google-hosted ads is shrinking slightly, but volume is exploding. The company may have reversed that dynamic in recent weeks, thanks to a couple of margin-friendly tweaks to Google's advertising platform.

Heading into 2014, Google shares are trading at just 21 times forward earnings. It's not the kind of deep-discount ratio that makes value investors drool in their sleep, but then Google isn't exactly a stale growth story, either. Just ask the master investors of our Rule Breakers newsletter team, who have tapped Google twice in recent years -- and would still not mind buying more.

Get our favorite social play
Opportunities to get wealthy from a single investment don't come around often, but they do exist, and our chief technology officer believes he's found one. In this free report, Jeremy Phillips shares the single company that he believes could transform not only your portfolio, but your entire life. To learn the identity of this stock for free and see why Jeremy is putting more than $100,000 of his own money into it, all you have to do is click here now.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2772470, ~/Articles/ArticleHandler.aspx, 9/14/2014 10:36:28 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement