Google costs rising.

One of my favourite companies in the whole wide world, Google, released results last night. Revenue for the first quarter was up 29% yoy (3% qoq) to USD6.5bn which was generally in line with estimates. EBITDA came in at USD3.6bn (wow those are great margins of 55.5%) but was slightly less than what highly expectant market participants were hoping for. This equated to USD8.33 dollars a share for the Quarter.

The stock dropped 5% in New York last night because margins have decreased slightly due to an increase in operating expenses. This includes salaries, marketing and research which represents a third of quarterly revenue (around USD2.16bn) and has increased 54% from a year ago. This is because Google have been increasing salaries and remunerations as well as putting big cash into finding new projects. I'm fine with this, they are looking to grow and compete with the likes of Apple and Facebook. I have said before, technology is a ruthless industry if you fall behind, you will be eaten up. Even if you do rule the planet.

Let's take a closer look at the numbers. If they maintain adjusted EPS of USD8.33 every quarter they would look to make USD33.32 for the year. They are currently trading at USD578 a share so a PE of around 17. However you would think at this rate they'd be able to grow earnings each quarter. So if they maintain this three percent quarterly growth they would look to make USD44. A very respectable forward PE of 13. Not bad for a company that literally affects our everyday life and has the ambition and track record to carry on innovating and growing.

Investment case against Google. They have struggled to get into the social network world and face very stiff completion from Facebook. That is why they implemented a 10% salary increase across the whole company and made an extra effort to keep valuable employees from jumping ship into other internet start-ups. Competition is rife in this sector and one has to be on their toes 24/7. The risk is that these companies fall behind and become a Yahoo! or a Myspace.

Investment case for Google. They are too big and too ambitious to fall behind. Larry Page, the creator, has taken the CEO position now because he feels he is ready to turn this company into the biggest in the world. He has a different management style and really encourages innovation and individuality. They have people designing cars that drive themselves for example. The company looks cheap, internet is the present and the future and at this stage Google is the internet. To reiterate my point, I read an article last year that most computer illiterate Facebook users actually search "Facebook" via Google in order to access the sight.