Google Inc. (NASDAQ:GOOG) was extremely hopeful that it would become the second biggest company after Apple; however when the earnings were revealed for the third quarter of this year ExxonMobil still remains at the second spot. As soon as they missed the analysts’ prediction for revenue, profit and Earnings per Share their stock price went down by 2% in extended trading. Advertising trends have been changing, and since Google’s 89% revenue is generated through advertising, the company needs to re-evaluate a few things.
Its revenues increased by 20% when compared to the same period last year with the numbers reaching $4.37 this year. After accounting for the revenue for their partners the number was reduced to $13.17 Billion and analysts had predicted it to be around $13.2 Billion. Google reported a non-GAAP income of $4.37 Billion, which was around 14.4% more than Q3 last year. However, the EPS predicted by analysts was $6.52 and Google managed around $6.35 only.
However despite all this Google was still optimistic about the growth they had managed to pull off when compared to the same time last year and the CFO said they would continue to invest in growth opportunities which they find strategic. This includes the Android, YouTube, Cloud and also ‘Google for Work’. However he didn’t address the fact that the cost per click is consistently falling and when compared to last year it fell by 2% in its third quarter this year and the paid clicks continued to increase in its third quarter as well.
This has been going on for a year and a half now but when comparing the CPC numbers for network and website, things are much worse as there is a decrease of around 4% when compared to last year. Citigroup had predicted it to fall 2.5% only; paid clicks increased around 17% from last year, site paid clicks 24% and network paid clicks 2%. Its Traffic Acquisition Costs were $3.35 Billion, which were paid to members of the Google Network and partners that direct traffic to its websites.
So with increasing expenses, huge dependence on advertising and deadly trends the target price on the Google stock has been reduced by many analysts including Goldman Sachs, Deutsche Bank and the analysts of the FBR capital market; its current price target is $658.3 per share. The stock is down by 1.1% in premarket trading but 45 analysts still hold a buy rating on the stock and 10 maintain a hold. None of the analysts is suggesting a sell yet.
Google has been concentrating on the smartphone sphere for quite some time now. The company has shifted its Google express focus to include the 50% smartphone users and is strengthening its partner support so its advertising clients can be empowered. Google is also introducing tools, which can help the user to prolong their app use instead of discarding it after using it once. The effectiveness of mobile applications downloads could only be increased this way.
Despite these disappointing numbers Google Inc. (NASDAQ:GOOGL) has nothing to worry about; the company is strong and involved in too many innovative projects to worry about dwindling away; it won’t happen any time soon. Therefore its investors won’t have much to worry about after the third quarter results; however the company will have to re-assess a few areas of its advertising sector and re-evaluate its advertising trends in order to avoid getting into any serious trouble.