What It Takes to Catapult Google Even Higher In 2014

Shares of Google (NASDAQ: GOOGL  ) rose 58% higher in 2013, nearly doubling the returns of the S&P 500. Along the way, Google's stock broke through the $1,000 share price benchmark (and $1,100 for good measure) and built the third largest market cap on the stock market.

What will it take to catapult Google even higher in 2014?

Google shares aren't exactly on fire sale right now. In fact, Google is closing out 2013 at the highest P/E ratio seen since 2010. So don't count on multiples expansion driving the stock higher in 2014. Instead, the online giant must prove its worth with strong earnings.

GOOG Revenue (TTM) Chart

GOOG Revenue (TTM) data by YCharts.

As this chart shows, Google still knows how to grow both the top and bottom lines like a hungry little upstart. Year-over-year revenue growth has clocked in at 24% or more in each of the last three years and is on pace for another 24% showing in 2013. Analysts predict a 16% revenue uptick in 2014, which would be the second slowest annual sales growth in Google's history.

Earnings are seen going 18% higher in 2014. Google's bottom-line growth is not nearly as linear as the revenue line's, and the company is only on pace for a 9% earnings-per-share increase in 2013. So Wall Street expects Google to slow down in terms of sales growth but accelerate its net income increases.

Behind the numbers, Google has plenty of balls in the air.

The Android platform is a worthy challenger to Apple (NASDAQ: AAPL  ) in America and trounces Cupertino's mobile platform globally, but Samsung pockets more of that income than Google does. The Motorola Mobility buyout does give Google a small interest in direct Android hardware sales, but Motorola-branded smartphones hold just 5% of the worldwide Android market next to Samsung's dominating 63% share. If Google wants to make money on Motorola handsets and tablets, there's plenty of work to be done here.

Google's peerless online advertising platform is already plenty effective, but Big G still tweaks its search-plus-advertising formula all the time. The latest round of nips and tucks should drive Google's revenue and gross margin higher in 2014, as advertisers can build ever more pinpointed marketing campaigns. Better campaigns should yield higher ad prices in Google's auction-style pricing model.

I'm not sure if Wall Street analysts have taken the latest ad tweaks into account, so it wouldn't surprise me to see Google shocking the Street in 2014's earnings reports. The first one is due in about three weeks, so there's your first chance to see Google's tighter ad model at work.

If Google beats revenue targets with gross margins north of 58% this time, you'll know that the advertising tweaks are working -- and that Google will beat analyst estimates for the next year as well.

The Fool's top stock for 2014
There's a huge difference between a good stock, and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. No, it's not Google this time. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (0) | Recommend This Article (3)

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: 2780266, ~/Articles/ArticleHandler.aspx, 11/26/2014 11:24:57 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