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From American Technology Research analyst Mark Mahaney's note to clients:

GOOG: Yes, You Can Make $ Buying GOOG At The Open

GOOG reported another Huge Beat Quarter -- $794MM net revenue came in 9% above the Street, $548MM EBITDA came in a whopping 24% above, and $1.29 pro forma EPS came in an incredible 40% above.

Fundamentals improved. Y/Y net revenue growth decelerated modestly from 121% in December to 109% in March. The 116% Y/Y growth in Google Web sites revenue was particularly impressive, down only from 118% in December. And the EBITDA margin climbed 390 bps Q/Q to 69%. In the wake of the Yahoo! (YHOO, $35.87, Buy) results, it was GOOG's margins that were the biggest surprise. Is 69% sustainable? We don't think so, but it's still very impressive that GOOG got here. Says volumes about the intrinsically super high margins of search.

Still boils down to three factors: 1) Online search growth is explosive -- both in the U.S. and internationally; 2) GOOG is gaining share across the sector -- e.g. GOOG grew search all-in 95% Y/Y, while Yahoo! grew 70%-ish; and 3) GOOG is executing very well and keeping operating expenses in line.

On the stock, we were Bulls going into numbers and we are Bulls coming out. We're Buyers-At-The-Open. Our estimates increase dramatically -- 2005 pro forma EPS from $4.46 to $5.33. Our price target increases from $275 to $290 -- 45X 2006 EPS of $6.54, 47X 2006 FCF of $6.23, and 28X 2006 EBITDA of $10.17.  Going into the quarter, GOOG had the highest revenue growth and margins in the Net sector. With the March results, it further distanced itself from the pack. GOOG deserves the highest multiples in the group.

Source: Sell-side reaction to GOOG's earnings