After a week of playing the role of catalyst in an international spat over online
freedoms between China and the United States, yesterday Google Inc. got
back to doing what it does best, namely churning out solid financial
results ahead of Wall Street expectations.
While the company's
revenue growth came in a bit below analyst predictions — causing
shares of the Mountain View, California company to dip 5% after hours
— earnings per share were ahead of anticipated targets and the company
netted a US$1.97-billion profit in the fourth quarter of 2009.
Analysts
were pleased to see paid click growth rise 13% year over year, and 9%
quarter over quarter, while cost per clicks — a stat which measures
the success of Google's online search advertising business — jumped 5%
year over year, indicating that not only Google's business, but the
broader online advertising business is stronger than it was last year.
"We think Google benefited primarily from a continued economic recovery
and strong retail ad spend trends and to a lesser extent from improved
YouTube strategies," said J.P. Morgan financial analyst Imran Khan.
Mark Mahaney at Citi believes the worst of Google's macroeconomic
headwinds are now behind it and that the company's most important
cyclical driver — cost per clicks — has turned around. He sees
display advertising and YouTube as large and profitable opportunities
and maintains a $640 price target on the stock.
Google
is banking on six trends playing a large role in transforming the Web
going forward — social, local, mobile, commerce, personalization and
cloud computing — and analysts believe the company is well positioned
to take advantage of each of those trends.
"We see a
reacceleration of revenue and earnings growth in the company
driven by tailwinds in display, mobile and local, which continues to
keep us positive on the company’s growth prospects," Canaccord Adams
analysts Jeff Rath and Wayne Chang said in a note to clients on Friday,
reiterating their $700 price target on Google's stock (it currently
sits at about $560).
"Mobile remains a priority driven by innovation as ad clients get better
at converting traffic, thereby raising monetization trends.
Furthermore, Google’s relationship with Apple remains very stable
despite the emerging competition between these 'frenemies,'" they said.
While Google's domestic growth was the standout (up 11.1% year over
year) fuelled by the recovery of the U.S. economy and the return of
large advertisers to the online world, some analysts were concerned
with the company's international growth.
"We continue to view Google as the best positioned company to benefit
from the global recovery in online advertising, with International
catching up to domestic growth in 2010," RBC Capital Markets analyst
Ross Sandler said in a note to clients.
"We would use the post-quarter weakness as a buying opportunity, as we
believe that consensus estimates remain low and should continue to
drift higher in 2010."
– Matt Hartley