APRIL 13, 2012, 10:45 A.M. ET
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Price targets and estimates are rising this morning, and most analysts seem pleased that Google mostly met estimates, in their view, even if the quarter’s profit was propped up by a lower tax rate.
Piper Jaffray’s Gene Munster raised his price target to $730 from $675, writing that the quarter was “good enough,” though he thinks the coming integration of Google’s Motorola Mobility (MMI) acquisition will likely weigh on the stock.
“Google management did not offer any additional color on the acquisition,” he observes, but “We believe the company is serious about getting into the hardware business.”
The “weak” cost per click is probably the “new trend” for the company, he writes, given the ongoing “mix shift” in the business to mobile search, etc.
“We continue to believe mobile is providing around 25% of the impact, emerging 25% and the product changes/core CPC changes the other 50%.”
RBC Capital’s Ross Sandler reiterates an Outperform rating and raises his price target to $850 from $800, writing that “1Q was largely uneventful, which we view as a relief in Google’s slowest seasonal revenue and typically steepest margin decline quarter.”
Among the negatives of the quarter, Sandler notes the rise in “traffic acquisition costs,” what Google pays to partners to get its search and display traffic:
1Q results were clean and solid for the most part, however TAC as a percent of network revenue continues to increase, climbing to 86.2%, up 110bps Q/Q and 220bps y/y, reversing the recent declines. Headcount additions of only 610 was the lowest in 2 years could raise questions about the sustainability of forward revenue growth,
Citigroup’s Mark Mahaney reiterates a a Buy rating and a $750 price target, writing that it was a “no-surprise quarter.”
As far as the new share class, it wasn’t really a split, he writes, but you shouldn’t expect such from Google anytime soon:
The company announced the creation of a non-voting Class C stock class, which will be given to existing Class A and Class B shareholders as a dividend on a one-for-one basis. This will effectively act as a 2-for-1 stock split, and will allow Larry, Sergey and Eric to retain a super majority voting power within the company. While, this doesn’t change much for institutional shareholders, this could increase the number of retail investors in the stock. What’s odd is that we don’t believe there was any real demand for this move by institutional shareholders. The positive spin is that the details imply a long-term commitment to the company by the Founders. The negative spin is that the details help ensure that future employee stock/option grants and stock-based acquisitions won’t dilute the Founders. It’s good to be Founder… A real shareholder wealth creation step would be the paying of a dividend. But we don’t expect to see one for several years…
BMO Capital’s Daniel Salmon reiterated an Outperform rating and raised his price target to $755 from $730, writing that the quarter was “largely in line,” with profit helped by a lower-than-expected tax rate.
Bears, he writes, still won’t be satisfied about the “cost per click” concerns they’ve had, after it fell 12% last quarter, despite management’s “detailed explanation of declining CPCs on the conference call
Balancing that out, he writes, the “dynamics of rapid mobile advertising volume growth — and other factors — are now fully reflected in consensus,” and margins contracted only a little bit, 80 basis points, calming fears about hiring, perhaps.
Salmon writes that he’s “benign” on the stock split — Google remains “founder controlled,” as he sees it.
UBS’s Brian Pitz reiterates a Buy rating and an $825 price target, writing that it was “a good quarter” with “continuing positive momentum in the core business and new initiatives.”
He notes that “Management reiterated on the call that Google’s display business is on an annual run rate of over $5 billion” and that mobile search “is strong too.”
Pitz sees the 12% CPC decline offset by the 39% year-over-year climb in paid clicks.
Writes Pitz, “As we have pointed out several times, paid clicks growth has become a better signal for the health of core search while CPC has taken a back seat.”
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Google: Ho-Hum Quarter Lifts Price Targets; That Non-Split Stock Split - Tech Trader Daily - Barrons.com
