Google Inc. reported earnings last night after the bell that absolutely destroyed Wall Street estimates. The earnings estimates were not even close, and this is reminiscent of the company’s early days, when Wall Street analysts did not have a clue on earnings estimates.
The Mountain View, CA-based company reported second quarter earnings of $8.74 per share on $6.92 billion in revenues. This was well past the Wall Street estimates of $7.85 per share on $6.55 billion in revenues. It’s no wonder the stock is up more than 12% today.
The company had a massive $39.1 billion in cash at the end of the quarter, up from $36.7 billion in the prior quarter, and $35 billion at the end of 2010.
On the conference call, CEO Larry Page said that the company’s new social networking product, Google+ has over 10 million members. This is a remarkable amount for a product that was just launched a few weeks ago.
“We had a great quarter, with revenue up 32% year on year for a record breaking over $9 billion of revenue,” said Larry Page, CEO of Google. “I’m super excited about the amazing response to Google+ which lets you share just like in real life.”
There were some concerns when Page took over for now Chairmen Eric Schmidt, who was the CEO of Google since the company became public. Many wondered whether Page would act like a CEO, and on his first conference call, he did not. He skipped out on the Q&A, and seemed to act more like a kid with A.D.D. then the leader of the world’s largest search engine. Since then, he has acted more responsibly and learned from his mistakes.
Granted, Google has over 200 million users who use GMail, and hundreds of millions who use the search engine, but this looks like it may finally be Google’s answer to Facebook in social networking. Facebook has been valued as high as $70 billion, and if Google can make any meaningful inroads into the social networking sector, Google and its shareholders will benefit in a major way.
The company is also activating over 550,000 Android devices per day, helping Google extend its dominate position in mobile search, as it takes on Apple in the smart phone game.
So this begs the question? Is Google going back to the future, and experiencing hyper growth again?
With Google+ growing rapidly, and the company growing revenues from $6.82 billion to $9.03 billion year-over-year, it looks as if the hyper-growth days of Google may indeed be back. Shares are trading at less than 15 times forward earnings, simply incredible for a company growing over 30% year-over year. The stock is even cheaper when you take out the $39.1 billion in cash, cash equivalents, and marketable securities it had at the end of the second quarter.
Traders who believe that Google is back to its hyper-growth ways might want to consider the following trades:
- Going long Google at current valuations could still prove to be profitable, as target prices are raised and the company continues to make headway into social networking.
- Going long Baidu could also prove to be profitable, as it is known as the “Chinese Google.”
Traders who believe that this was a one-off event and Google will not get the bang for its buck that so many fear may consider alternate positions:
- Shorting Google or buying puts on the name could prove to be profitable if the company continues to spend tremendous amounts of money and not get a return on its investment.
— Jonathan Chen