Here’s the press release. Live discussion below of conference call below.
Quarter: Revenue in line. Deceleration continues, and year-over-year growth now only 6%. Consensus of reacceleration by end of year still seems unlikely. EPS modestly ahead of consensus on cost control. Cash flow un-fracking-believable. Overall, probably not enough to drive stock higher, but cash flow spectacular.
Free cash flow totaled $2 billion, thanks to low capital expenditures. Patrick (CFO) said that CAPEX will remain lumpy but that lower CAPEX trend will likely continue. That suggests that current cash flow is sustainable.
This quarter’s cash flow equates to an $8 billion free-cash run-rate. That means the stock is trading at 13X run-rate free cash flow (enterprise value). That’s not screamingly cheap for a company this size, but it’s no highway robbery, either.
Importantly, Google’s revenue reflects spot-market pricing, not long-term contracts. This means the company’s revenue will recover quickly when the economy begins to recover. Given the leverage in the model, this should drive the stock higher very rapidly…(when the economy begins to recover…and we’re not there yet).
Here is performance relative to key metrics:
- Net Revenue in line (Gross – TAC): $4.07B vs. $4.08 consensus.
- Paid clicks up 17% vs. 14% consensus.
- Operating margin 53% vs. 48% (impressive)
- CAPEX: $263 million vs. consensus of $500mm+
- Free cash flow: $2 billion vs. $1.8 billion consensus
- Adjusted EPS modest upside: $5.16 vs $4.90 consensus.
- GAAP EPS: $4.49 vs. $4.17 consensus.
Please feel free to chime into our LIVE DISCUSSION of the conference call below:
Our Bottom Line: Q1 estimates have dropped significantly and are now very conservative, so Google should beat them. If it doesn’t, look out below. “In-line” results won’t get the job done: The stock has had too big a run to sustain the current price without a material upside surprise.
Background: At $385, Google’s stock is trading at about 18X trailing free cash flow of $5.5 billion (Enterprise Value/FCF). That is a bit expensive for a company this size, and it reflects a consensus that Google’s growth will reaccelerate in the second half of 2009 and especially through 2010. We think the 2009 and 2010 estimates are still too high, so the downside probably outweighs the upside here.
Key Stats (Consensus):
- Net Revenue (Gross – TAC): $4.08 Billion
- Pro-forma Operating Income: $2.02 Billion
- Adjusted EPS: $4.90
- GAAP EPS: $4.17
Here are Citi analyst Mark Mahaney’s estimates, which are slightly below the Street consensus:
And here’s Mark’s analysis of how the stock has performed after previous quarterly releases:
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