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April 15, 2014

Google ‘can splash the cash on Android, YouTube and Chrome’

IG believes the tech giant will beat financial forecasts again.

By Joe Curtis

Google’s latest financial results come out tomorrow, and with the tech giant predicted to have $11.3bn to spend on YouTube, Android and Chrome, analyst firm IG thinks the firm will beat forecasts again.

Chief market analyst Brenda Kelly says: "The recent stock split and the decision to sell off the Motorola unit [for $3bn to Lenovo] has been the big news of late, but Google will need something significant to boost enthusiasm when its earnings arrive."

"In the last quarter, revenue was up 22%, hitting $15.7bn. Meanwhile, margins are holding steady at 21.6%. The operational picture looks bright for the company, and the plentiful free cashflow of $11.3bn gives it the wherewithal to continue investing in its YouTube, Android and Chrome operations."

Comparing the competition

"When looking at Google’s share of the search engine market, the picture is almost embarrassing: it has 67.5% of the market, compared to 18.4% for Microsoft. Google’s dominance looks almost insurmountable. Google’s share price has marched higher since the middle of 2012. The shares dropped by around 12% during March, but in the recent selloff they were left comparatively unscathed. The company’s PE of 30 seems relatively sane compared with some of the sky-high valuations in the sector, illustrating that quality will usually shine forth in these situations."

Prospects for Google’s share

"The share price has found a floor at $540 for the time being, although the 100-day moving average around $570 appears to be throwing up a degree of resistance. In the short term, it may well be that Google will be dragged lower along with the rest of the market, but in the longer term it seems unlikely that we can hold back the share price. Expectations are for adjusted earnings of $6.367 per share, or GAAP (Generally Accepted Accounting Principles) earnings of $5.283. Google has beat forecasts in four of the last eight reports, so the general expectation will be for another beat here. It’s time for the internet behemoth to step into the spotlight."

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