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April 18, 2008 – Comments (8) | RELATED TICKERS: GOOGL

To have had google options...

Google beat earning expectations.   So... how good are earnings relative to share price?

Well, yesterday they were 20% better than today.  At the rate google is earning it would take 22 quarters or 5.5 years to earn the one day increase.

Current market cap is $169 billion and net income was $1.3 billion.  The quarter's P/E is 32.5 based on today's market cap, or 3.3% eps.

Google has done very well on growth of earnings, but earning growth is declining.

                                                           
  Quarter
Earnings/ share
% increase
over last Quarter
% increase
over Quarter
1 year earlier
Quarter
increase annualized
Q4 2004
0.71
n/a
n/a
n/a
Q1 2005
1.2982%
n/a
997%
Q2 2005
1.19
-7.8%
n/a
-28%
Q3 2005
1.3210.9%
n/a
51%
Q4 2005
1.22
-5.5%
72%-20%
Q1 2006
1.95
59.8%
51%
552%
Q2 2006
2.33
19.5%96%104%
Q3 2006
2.361.3%
78%
5.3%
Q4 2006
3.29
39.4%
169%
278%
Q1 2007
3.18
-3.3%
63%
-13%
Q2 2007
2.93
-7.9%
25.8%
-28%
Q3 2007
3.38
15.4%
43.2%
77%
Q4 2007
3.79
12.1%
15.2%
58%
Q1 2008
4.12
8.7%
29.6%
41%

I am trying this embed a document I made a graph with a trend line for  the increase over the previous quarter, for the increase over a year earlier and for the annualized rate of return for the quarter over the previous.  All three show the rate of earning growth is declining.


Google Declining Rate of Growth - Get more documents

I am going to continue this in the comment so I can see what I have rather then a bunch of html code.

8 Comments – Post Your Own

#1) On April 18, 2008 at 9:31 PM, dwot (41.46) wrote:

The first graph you can see initially the annualized growth each quarter was insane.  Earnings per share was small, the business was small and it is easier to grow a small business than an large one.

The second graph, Quarter increase over previous has the trend line as concave down because that big jump in there is because of the purchase of U-Tube, I believe.  Don't quote me there.  Google's earning growth in now more coming from profits from new aquisitions rather than the core business of ads on web pages driving it.

The last graph shows that the increase over the previous quarter is highly volatile.  There are 4 quarters there where earnings declined between quarters but that hardly showed up in the news about the earnings.  The headlines used the quarter from the year earlier.

The next quarter show start to show earnings from DoubleClick.  This quarter only had about 20 days worth.

The release says "The overall impact of DoubleClick in the first quarter of 2008 was immaterial to revenue and only slightly dilutive to both GAAP and non-GAAP operating income, net income and earnings per share", but it doesn't say what it is and leaves you to just trust them.  So, share dilution is showing about 1% over the previous year and share count is almost double 2002.  So, I guess doubling the share count is bench mark for their comparison?

I just opened the slides from the presentation.   I've been looking at the earnings per share and the what it means to an investor that owns 1 or 2 or 10 or 100 shares.  The presentation is entirely the revenue for the company.  There is no question the growth, but I saw quarters with reduced earnings and that doesn't show up in the presentation.

The US growth is dead flat now, whereas international revenues accounted for about an extra $360 million.  This is significant, very, very, very significant. "Had foreign exchange rates remained constant from the first quarter of 2007 through the first quarter of 2008, our revenues in the first quarter of 2008 would have been $202 million lower." 

So, earnings were up about $300 million but they had a $200 million exchange windfall...   Chances are that the Euro will not be as strong, or certainly won't be gaining like it did.  I think the Euro is also going have problems as their housing bubbles unwind. 

It means if the dollar had not plummet earnings would be up 10% over the year rather then 30%.  $200 million is 2/3rds of the increase over the year earlier quarter.

 

 

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#2) On April 18, 2008 at 10:59 PM, abitare (31.24) wrote:

You are awesome. Really....

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#3) On April 18, 2008 at 11:54 PM, lquadland10 (< 20) wrote:

Thank you. LQ

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#4) On April 18, 2008 at 11:54 PM, dwot (41.46) wrote:

Well, thanks abitarecatania...

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#5) On April 19, 2008 at 12:33 AM, lquadland10 (< 20) wrote:

dwot, you made me think and I was wondering if this applies to companies like ko ibm pot mon and other overseas companies. Thank you. LQ.

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#6) On April 19, 2008 at 10:52 AM, dwot (41.46) wrote:

lquadland, it probably does.  International companies will have exchange windfalls.  I tend to think the decline of US dollar to Euro is over.  I still think the pound will fall further relative to the Euro.

I think housing and debt will play a huge role.  The demographia survey gives a good picture of home affordability.

http://www.demographia.com/dhi.pdf 

Page 30 they start giving the whole list in order and page 35 lists the affordability by country.

Australia is toast.   In Canada our worst problem is in BC and the rest is very manageable.  Ireland isn't great.  New Zealand is awful.  United Kindom is terrible.  Europe isn't on the report.  

In the US there are places that are a disaster and place that are ok.  But, if you look at 5 and over, it has lots of US cities and some are pretty big.

LA - 3.8 million, Salinas - .2 million,  San Francisco - .8 million, Honolulu - .4 million, San Diego - 1.3 million, San Jose - .9 million, Santa Rosa - .2 million, Ventura County - .8 million, Miami - .4 million, San Berdino - .2 million, New York - 8.3 million - Stockton - .3 million, Vallejo - .1 million, Boston - .6 million, Freseno - .5 million, Bakersfield - .3 million, Portland - .5 million, Orlando - .2 million, Tucson - .5 million, Washington DC - .6 million, Providence - .2 million, Reno - .2 million, Sacramento - .5 million, Modesto - .2 million, Las Vegas - .6 million.

I guess that is about 23 million people.

For Canada:

Abbotsford .1m,  Victoria .1, Vancouver .6 million, Kelowna .1, about .9 million.  All are in BC.

A serious limit of this report is that it doesn't look at suburbs.  There are about 17 municipalities that make up Greater Vancouver, for a total population of about 2 million.  

Washington DC has about 8 million people around it, or so I thought.  Heck, there could be the cities around it included and I wouldn't know it.  I think of Abbotsford as a suburb of Vancouver and it got its own line.

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#7) On April 20, 2008 at 3:20 PM, rhallbick (99.62) wrote:

Thanks for the link to demographia, dwot.  It's the first time that I have seen that point of view and much of it strikes me as plausible.  I like their observation that in economics there is no such thing as a "law of demand".  There must be supply constraints, whether real or artificial.

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#8) On April 30, 2008 at 7:06 AM, TheRupturedDuck (30.17) wrote:

17530% gain isn't that something, I think it was because GOOG reported the day of options expiration so if you had calls based on the assumption that GOOG would not only beat but would rally 20% (quite a bet considering it's a large cap name.) I know what you mean about decelerating growth. But you could say the same about Apple too, but to me the argument I'm about to make works for both. Motley Fool always talks about buying solid companies that you can hold for the next ten years. For example (I'm paraphrasing the statistics) but if you bought Coke (KO) in 1980 and held it for a decade you'd be up over 600%. Now the real growth in Coke happened way before 1980 but Google is going to dominate search and advertising for this century (or at least half century.) They are on their way to a monopoly. This yahoo-microsoft proposed merger is going to do nothing and shows how afraid of google MSFT is. In a recession standards for growth and the number of companies that can achieve double digit growth shrink which puts GOOG in a better position. I'm not long GOOG yet so I'm hoping for a pullback so hopefully in the short term more people will agree with you then with me:).

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