Yesterday, 4:21 PM
- The Nasdaq has closed its latest ultra-volatile day up 4.2%. Chip stocks, hit hard in recent weeks amid China/inventory concerns, were among the standouts (SOXX +5%) during the rally: Big gainers included Nvidia (NVDA +7.5%), Skyworks (SWKS +6.9%), Qorvo (QRVO +5.9%), Xilinx (XLNX +6.3%), Analog Devices (ADI +7.1%), Linear (LLTC +6.1%), SanDisk (SNDK +7.4%), ON Semi (ON +6.2%), and Cavium (CAVM +5.6%).
- Cybersecurity plays and various other enterprise tech names also did well. Standouts included HP (HPQ +5.5%), Palo Alto Networks (PANW +6%), Rackspace (RAX +9.8%), Red Hat (RHT +5.9%), KEYW (KEYW +8.1%), Brocade (BRCD +5.6%), ShoreTel (SHOR +5.7%), Violin Memory (VMEM +14.7%), and Rapid7 (RPD +7.2%).
- In addition to HP, tech large-caps turning in big gains included Apple (AAPL +5.7%) Microsoft (MSFT +5.5%), Google (GOOG +7.7%), and Intel (INTC +5.5%). Google benefited from a Goldman upgrade.
- KEYW announced a CEO change yesterday afternoon. HP and Brocade are adding to last week's post-earnings gains. Skyworks/Qorvo peer Avago has posted an FQ3 beat after the close.
Yesterday, 10:47 AM
- Believing Google (GOOG +4.4%, GOOGL +4.2%) is in the early stages of a multi-year margin expansion cycle, Goldman's Heather Bellini has upgraded to Conviction Buy, and set an $800 target.
- Bellini: "Google is implementing greater transparency, and we believe the management team is signaling a greater focus on cost control given recent earnings call commentary and the new operating structure with Alphabet." Three firms upgraded after the Alphabet announcement, and BMO and Axiom respectively upgraded just before and after the Q2 report.
- Bellini adds talks with 20 Fortune 1000 marketing execs yielded positive commentary. "Google was cited as the vendor most likely to see the greatest increase in spend over the next three years, with mobile search and video advertising highlighted as key areas of growth. For mobile advertising, Google Search emerged as the ad format with the greatest ROI, ahead of Facebook. While we believe the shift of TV advertising budgets moving to video may take longer than many in the market anticipate, our checks ranked YouTube as the best online substitute for TV advertising dollars."
- Google is among the large-cap standouts as the Nasdaq posts a 1.9% gain. The Class A and C shares respectively go for 19x and 18x 2016E EPS.
Mon, Aug. 24, 8:03 AM
- Tech stocks in the U.S. are sharply lower in early action after the sector fell just as hard as broad market averages in China and Japan. Tech heavyweights aren't getting spared amid the carnage.
- Google (NASDAQ:GOOG) -4.1% premarket to $587.31.
- Apple (NASDAQ:AAPL) -5.1% to $100.38.
- Microsoft (NASDAQ:MSFT) -3.9% to $41.41.
- Facebook (NASDAQ:FB) -3.4% to $83.05.
- Yahoo (NASDAQ:YHOO) -6.6% to $30.75 and Alibaba (NYSE:BABA) is down 8.7% to $62.26 as concerns over growth in China mount.
- The Nasdaq 100 futures contract is off 4.8%.
- Related ETFs: XLK, VGT, HACK, SOXL, FDN, GGT, TECL, USD, SMH, IYW, TDIV, IYZ, SOXX, ROM, XSD, VOX, SOXS, FTEC, TECS, RYT, PBS, PSI, IGV, QTEC, IGM, FXL, SSG, PSCT, IGN, MTK, REW, XTL, PXQ, FCOM, XSW, PSJ, PTF, LTL, TLL
Tue, Aug. 11, 10:27 AM
- Stifel, Mizuho, and Monness Crespi have upgraded Google (GOOG +5.5%, GOOGL +5.3%) to Buy after the Web giant announced it's creating a holding company structure under the Alphabet label, and is making Sundar Pichai the CEO of its core operations. Susquehanna launched coverage at Positive shortly before the announcement broke.
- BMO's Daniel Salmon (Outperform, $770 target) joins many others in praising the improved transparency expected to result from the shakeup: "The only complaint we heard from investors regarding last quarter’s earnings call was the lack of increased transparency into the business. Breaking out YouTube was a popular request and while Alphabet won’t do that, the move has certainly addressed the broader interest in better understanding the different components of Google..."
- RBC's Mark Mahaney (Outperform, $750 target): "We have long assumed that Google’s Core Advertising segment is very highly profitable – perhaps well north of 60% EBITDA margins. The new disclosure should confirm this ... the re-organization will likely lead to some efficiencies from a more focused management team. Finally, we believe Mr. Pichai is a logical, and strong, choice to lead the core Google platform."
- Deutsche's Ross Sandler (Buy, target hiked to $840): "We estimate Core Businesses (Search, YouTube and Apps) at $59B in revenue in 2015, growing 14% (+21% ex-FX). This would put the Emerging Businesses segment at $763m (Figure 1). If we were to assign a 55% EBITDA margin to Core (assuming near 70% for search, the remaining below the average), that business would generate $38B in 2016 EBITDA and likely fetch at 15x multiple once investors see the stronger financial profile. Emerging contains many loss making businesses and we believe EBITDA loss could be $3B in 2016."
- Om Malik suspects Alphabet is set to make large investments in other companies, and argues keeping some distance between those investments and core Google will lower regulatory scrutiny. Like others, he also sees parallels between the Alphabet structure and Berkshire Hathaway - Larry Page has long been a Warren Buffett fan.
Tue, Aug. 11, 9:16 AM
Mon, Aug. 10, 4:57 PM
- Google (GOOG, GOOGL) is forming a new parent company called Alphabet, Larry Page discloses in an eye-popping blog post. Alphabet will contain Google proper, as well as offshoot companies that are "pretty far afield of [Google's] main Internet products." The Google X lab, which has worked on products such as self-driving cars and drones, will be separate from Google proper, as will the Ventures and Capital investment arms.
- Larry Page will be the CEO of Alphabet, and fellow co-founder Sergey Brin its president. Sundar Pichai, who last fall was put in charge of Google's core products, is now the CEO of Google proper.
- Page: "Alphabet Inc. will replace Google Inc. as the publicly-traded entity and all shares of Google will automatically convert into the same number of shares of Alphabet, with all of the same rights. Google will become a wholly-owned subsidiary of Alphabet. Our two classes of shares will continue to trade on Nasdaq as GOOGL and GOOG ... we are not intending for this to be a big consumer brand with related products--the whole point is that Alphabet companies should have independence and develop their own brands."
- GOOG +3.8% AH to $657.80. GOOGL +4.1% to $690.00.
- Update: More details can be found in Google's 8-K filing for the shakeup. In addition to Google X, Ventures, and Capital, Nest (now responsible for Dropcam and Google Glass, in addition to smart thermostats/smoke alarms) will be outside core Google, as will Fiber. Core Google will include "search, ads, maps, apps, YouTube and Android and the related technical infrastructure."
- Update 2 (6:23PM ET): GOOG and GOOGL are now both up 6.2% AH.
- Update 3: Analysts praise the shakeup for providing more financial transparency regarding Google's operations and capital allocation. Meanwhile, there's speculation Google pulled the trigger on the move after Pichai received an offer to become Twitter's CEO.
Fri, Jul. 17, 12:44 PM
Fri, Jul. 17, 10:42 AM
- Axiom Securities has upgraded Google (GOOG +13.4%, GOOGL +14.8%) to Buy following the company's Q2 beat and investor-pleasing comments about spending discipline, potential capital returns, and YouTube/mobile growth. MKM has launched coverage at Buy, and plenty of other firms have hiked their targets. Google's market cap is now above $450B.
- Deutsche's Ross Sandler: "We think this could be the dawn of a new era for shareholders. Google is showing investors that its management team (even pre-Ruth Porat) cares deeply about its stock price and talent retention. We've long held that innovation is alive and well, and the narratives around irrelevance in mobile or share loss to Facebook that weighed on the multiple were somewhat misguided ... We have increased our 2016 EPS by 7%, and we expect the multiple to expand..."
- Credit Suisse's Stephen Ju: "YouTube is starting to contribute more meaningfully to revenue as it helped to drive acceleration in paid click growth to +30% (vs. 1Q15 25%) as well as U.S. revenue growth to 16%. Google Play was in-line with our estimate, suggesting it continues to grow at ~35% on an FX-neutral basis. As we have noted earlier, we continue to see clear indications of these two emerging business lines exerting greater impact..."
- MKM's Rob Sanderson: "The growth story is very much alive. However, we think that solid expense control and discussion of disciplined capital allocation going forward were the more material drivers of the stock gains." His list of potential long-term growth drivers includes "mobile's ability to influence the 90% of retail transactions not online, video ad dollars migrating online, monetization of mobile apps, and new ad products."
- BMO's Daniel Salmon, who upgraded ahead of earnings yesterday: "[W]e felt the most important elements were: 1) investor interest was piqued by comments about potential capital return when considering financing options; 2) the acceleration of YouTube metrics across the board ... 3) CBO Kordestani’s emphasis of the billion+ user bases for YouTube, Chrome, Android, Search, Maps, etc. sounded very much like the 'portfolio of apps' strategy/messaging that has served Facebook so well. While we tepidly stepped into this recommendation yesterday, our conviction is now much stronger..."
- Prior Google coverage, CC transcript
Fri, Jul. 17, 9:22 AM
Thu, Jul. 16, 6:26 PM
- Google's Class A shares (NASDAQ:GOOGL) are now up 11.5% AH, and its Class C shares (NASDAQ:GOOG) up 10.7%, following the Web giant's Q2 beat. Both share classes are making new 52-week highs.
- In the wake of a recent WSJ report about spending/hiring curbs, CFO Ruth Porat confirmed on the earnings call Google is now taking a more disciplined approached to spending, while adding she plans to work with Google business leaders to get more data. Google plans to direct roughly 70% of its spending towards its core business, 20% on adjacent areas, and 10% on big new ideas. (live blog)
- When asked about dividends/buybacks, Porat didn't make any promises, but didn't shut the door on them either, stating her review process is still at an early stage and that capital returns have to work for the medium/long-term.
- Porat and chief business officer Omid Kordestani provided plenty of positive remarks about mobile and YouTube growth. Among them: 1) YouTube "watch time" rose over 60% Y/Y in Q2 - its fastest growth rate in two years - with mobile viewing more than doubling. 2) The average YouTube mobile session lasts about 40 minutes, and the number of advertisers on YouTube is up 40% Y/Y. 3) Mobile searches now exceed PC searches in 10 countries, including the U.S. and Japan. 4) Google has indexed 50B search links within mobile apps.
- As was the case on the Q1 CC, Google argues ad prices (CPCs) are being pressured more by YouTube ad growth than mobile. Without giving specific numbers, Porat noted mobile ad prices continue rising, and that PC prices aren't declining.
- Q2 results, details
Thu, Jul. 16, 5:41 PM
Thu, Jul. 16, 4:26 PM
- While Google's (GOOG, GOOGL) Q2 revenue slightly missed estimates when factoring traffic acquisitions costs (TAC), its ex-TAC revenue of $14.35B was slightly above a $14.3B consensus. The reason: TAC fell to 21% of ad revenue from Q1's 22% and Q2 2014's 23%. That also, of course, helped EPS beat estimates.
- Paid clicks: With the help of mobile, YouTube, and product listing ads, paid clicks rose 7% Q/Q and 18% Y/Y; annual growth accelerated from Q1's 13%. Clicks on Google sites +30% Y/Y; clicks on other sites -9% (hurt by quality-control efforts and perhaps also Facebook).
- Ad prices: YouTube/smartphone ad growth and forex continue affecting cost per click (CPC): It fell 4% Q/Q and 11% Y/Y, after dropping 7% Y/Y in Q1. Google sites CPC -16% Y/Y; CPC on other sites -3%.
- Segment performance/forex: Google sites ad revenue +13% Y/Y to $12.4B. Ad revenue on other sites +2% to $3.6B. Other revenue (Google Play, Nexus hardware, etc.) +17% to $1.7B. Revenue growth would've been 18% Y/Y if not for forex, instead of the reported 11%. $471M worth of forex hedging gains were recorded.
- Spending/cash flow: Operating expenses were 36% of revenue vs. 35% in Q1 and a year ago. Cost of revenue (exc. TAC) was 18% of revenue vs. 17% in Q1 and 18% a year ago. Notably, capex fell to $2.52B from Q1's $2.93B and Q2 2014's $2.65B. That helped free cash flow rise 50% Y/Y to $4.47B.
- Google ended Q2 with 57,148 employees (+3% Q/Q), $69.8B in cash/investments (much of it offshore), and $5.2B in debt.
- GOOG +7.1% AH to $621.00. GOOGL +7.4% to $646.53. CC at 4:30PM ET (webcast). BMO's morning upgrade is looking good.
- Q2 results, PR, slides (.pdf)
Thu, Jul. 16, 4:03 PM
Tue, Jul. 14, 2:28 PM
- New Google (GOOG +3.3%, GOOGL +2.9%) CFO Ruth Porat is "involved in an internal audit examining costs, revenue and accounting systems," the WSJ reports ahead of the Web giant's Thursday Q2 report.
- The WSJ also states Google execs are now selecting which teams are allowed to hire new workers - in prior years, teams assumed they could add new staff each year. Moreover, travel, supplies, and events "all require more justification or approvals than in the past," according to two sources.
- Google's Q1 numbers already suggested the company is slowing down its oft-criticized spending pace: Operating expenses fell to 35% of revenue from 37% in Q4 and Q1 2014. Capex still rose 25% Y/Y to $2.93B.
- Also: Cowen's John Blackledge is out with a bullish note. He reports U.S. search marketing firm EliteSEM saw its clients' Google ad spend rise 15%-20% Y/Y in Q2, as strong mobile ad growth offset "flattish" PC spending. Blackledge: "Despite declining Desktop search volumes, paid clicks are still doing very well as Google continues to innovate and improve overall conversion." He predicts mobile ad prices will reach parity with PC prices "at some point in 2016."
- Google is one of the better large-cap tech performers on a day the Nasdaq is up 0.8%. Class A shares (NASDAQ:GOOGL) are up 11% YTD; Class C shares (NASDAQ:GOOG) are up 7%.
Fri, Jul. 10, 1:19 PM
- Believing YouTube and Google Play will make up 15% of the company's 2015 gross revenue (up from just 4% in 2010) and grow to 24% by 2020, Credit Suisse's Stephen Ju has hiked his Google (GOOG, GOOGL) target by $10 to $700, while reiterating an Outperform.
- Ju respectively forecasts 2015 YouTube and Play gross revenue of $6B and $5.1B in 2015, and ~$16B and ~$14B in 2020, with margins/profitability improving as sales grow. Of note: Net revenue is much lower than gross, given YouTube provides a 55% cut to content partners and Google Play a 70% cut to developers.
- He adds "extensive checks with industry sources" lead him to "assume a steeper gross profit dollar growth trajectory for YouTube" thanks to adoption of its recently-launched TrueView ad format, which lets users learn about/buy products shown in video ads. An ad-free subscription service is in the pipeline. Meanwhile, Facebook has been taking a number of steps to encroach on YouTube's turf.
- Separately, The Information reports Google is working with Huawei on a next-gen Nexus phone due this fall, as well as on a Chinese app store. Local Web giants Baidu, Qihoo, and Tencent currently dominate the Chinese Android app store market. Chinese developers are able to upload apps to Google Play, but only for international distribution.
- Google is outperforming on a day the Nasdaq is up 1.3%. Q2 results arrive on July 16.
Fri, Jun. 19, 10:40 AM
- Unconfirmed Google (NASDAQ:GOOG) buyout chatter is propelling Twitter (NYSE:TWTR) higher. In the past, shares have also risen on rumors (later shot down) that Carl Icahn has taken a stake.
- Speculation that Google could bid for the microblogging platform has been around for a while. Twitter's recent selloff, search/ad integration deals with Google, and Dick Costolo's resignation have fanned the flames.
- With a current market cap of $23.7B - a buyout offer might need to be above $30B - Twitter would represent a big acquisition even by Google's standards.
- Update: Some more Twitter news on a busy week: The company is testing dedicated pages that "surface and organize relevant Tweets about products and places," as well as ones that allow "people and brands to create and share Twitter collections of products and places." HBO, Nike, and Target are among the initial adopters of the latter feature. Buy buttons are supported.
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