Google posted very good earnings yesterday but not good enough for many. The earnings, and a 5% fall in Google’s stock price, were good enough for me to add a few more shares to my long term investment in the company. Earnings per share grew from $4.49, $1.42 billion total, in the 1st quarter of 2009 to $6.06, $1.96 billion (38% increase in profits and 35% on a earnings per share basis). On a non-GAAP basis earning per share grew from $5.16 to $6.76. Revenue increased from $5.51 billion to $6.78 billion and the operating margin increased from 34.2% to 36.7%.
Chris Bulkey has a good article on TheSteet.com, Google Tax Rate Inflates EPS, though I disagree with his conclusion.
Recall that Google records gains from marketable securities with interest income. This gives management flexibility to boost income by timing investment sales. Normalizing this line item with the year-ago period shaves 3 cents a share from the bottom line. The effective tax rate came in below the prior year with essentially no change in revenue from international customers (53% vs. 52% in the first quarter of 2009). It is therefore likely that deliberate utilization of deferred tax assets was responsible for the easy comparison. Attempts to ascertain specific amounts deferred were unsuccessful; we’ll have to wait for the 10-Q.
Cash flow decelerated to $2.58 billion from $2.73 billion sequentially. On a year-over-year basis, cash generated from operations increased 15% — respectable in absolute terms, but loosely correlated with net income, up 38% from last year.
We reiterate a “sell” rating and $544 price objective; Our target multiple moves to 21 times revised 2010 EPS estimate from 23 times.
Obviously I bought more, so I don’t agree with the conclusion, but his points are sensible and worth considering.
Google profit up 38%, helped by ads by John Letzing
Google’s rate of paid clicks, or the number of times users clicked on advertisements to generate revenue, rose 15% from the year-earlier quarter. It had posted 13% growth in paid clicks in the prior fourth-quarter report. Analysts had been looking for first-quarter paid-click growth in the range of 12% to 14%.
Meanwhile, the prices paid for those clicks to Google in the first quarter rose 7% from the year-earlier quarter but were down 4% from the sequentially previous quarter.