Google shares rise as strong ad business eases macro fears
BANGALORE, July 21 — Shares of Google Inc rose 3 per cent in premarket trade yesterday after the company posted a healthy gain at its online advertising business, reassuring Wall Street that it was performing well despite a slow economy.
A slew of analysts reiterated their ratings and price targets on Google’s stock, saying there were no real surprises and that the positives had offset the negatives in the quarter.
“There is still material return on investment upside available to advertisers from search advertising, and that such upside will continue to fuel ongoing demand for search ads and revenue growth,” Sanford C. Bernstein analyst Carlos Kirjner said in a note.
Google’s advertising rates have been pressured as consumers increasingly use smartphones to access mobile versions of the Web, but the concern was alleviated as overall clicks on Google’s search ads jumped 42 per cent in the second quarter.
“While the quarterly results were somewhat unremarkable, we believe shares may form a base at or near US$600, in part because investors will soon shift attention to back-to-school and holiday shopping seasonality,” Stifel Nicolaus said.
The brokerage has a “hold” rating on Google’s stock.
The success of Google’s web browser, Chrome, will offset rising traffic acquisition costs (TAC), Barclays Capital analyst Anthony DiClemente said in a client note.
TAC is the money paid by Internet search companies to online firms that direct traffic to their websites.
DiClemente is a five-star-rated analyst for the accuracy of his earnings estimates on Google, according to Thomson Reuters StarMine data.
Chrome users nearly doubled by the second quarter to 310 million.
Benchmark Co, which has a “hold” rating on Google’s stock, raised its price target by US$10 to US$625.
No word on Motorola
The world’s No.1 search engine, however, evaded questions about its plans for Motorola Mobility, which it recently bought for US$12.5 billion (RM39.4 billion), saying Google was yet to complete its homework on the various businesses.
“Results were somewhat difficult to decipher with the consolidation of the Motorola Mobility acquisition,” RBC Capital Markets analysts said.
“Management did not outline a specific plan for the future of MMI as a part of Google, and so we anticipate that Street estimates for the combination could vary quite widely.”
Motorola reported an operating loss of US$233 million in the second quarter on revenue of US$1.25 billion.
Barclays’ DiClemente said Google had the ability to instil fiscal discipline for Motorola to limit the spending investors fear.
Google also did not provide much details about its hardware business where margins are low and competition from the likes of Apple Inc and Samsung Electronics Co Ltd is fierce.
Benchmark said it expects aggressive development of mobile devices, which could push expenses higher in the near-term, while J.P. Morgan Securities said it continues to expect Motorola product portfolio to be pared back and headcount to be reduced.
Shares of the company, which closed at US$593.06 on the Nasdaq on Thursday, rose to US$610 in trading before the bell. The stock has dropped 11.5 per cent since it touched a four-year high of US$670.25 in January. — Reuters
