Friday, 31 January 2014

Google - two charts, two quotes, two statistics, one conclusion

Google impressed the market after the close yesterday.  The headline numbers did not immediately impress investors - after a strong recent run - but news that the long-awaited stock split / 'C share' will occur in April helped push the shares up over 3% in the after market. 

I have covered the growth of Google's ubiquity many times before.  What did yesterday's numbers add to the debate though?

Statistically - for an insight into Google's progress - the key statistics to look for are the paid click and cost-per-click spread.  For Q4 year-on-year paid clicks rose 31% and cost-per-click fell 11%.  That's a 20% spread.  Impressive and so much for the fears of a year ago about declining mobile advertising pricing hurting the model. 

How about the quarter-on-quarter progression.  The respective metrics were +13% and -2%.  The spread of 11% is fine, but just fine only. 

The key chart from the presentation was the continued compression/control of traffic acquisition costs.  That's a tick in the box. 

The monetisation of the advertising model is working well.  As the company put it on the conference call:

'The volume of compression running through our private exchanges as on average doubled every quarter over the past year. Overall, our monetization solutions like our Ad Exchange, AdSense and AdMob are helping major publishers maximize their revenues from digital advertisers. So that's our core ad business'

Additionally, Google's representatives noted that:

'YouTube has over 1 billion viewers per month and saw a 50% increase in daily watch time last year'
That's a powerful growth franchise to augment the core advertising one, plus all the other interests the company has.
As aforementioned, the share has performed well during the past few months and now trades (using FY14e projections) on just under x18 EV/ebit and generates a 4% free cash flow yield.  I like Google, its asset base and what it stands for and the strategic attraction remains clear, which is why (for disclosure) my pension fund holds both it and Twitter.  For new marginal capital though I am looking for a lower level.  Note the gap up after the Q3 numbers.  The support/resistance at the US$1050 level interests me.  Volatile markets may take us there transitorily. 

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