Google numbers are great, excellent in fact

Google reported third quarter results last evening after the market closed. You can download them and have a look here: Google Inc. Announces Third Quarter 2013 Results. Revenues and earnings top estimates. The business as we will discuss shortly is essentially an online advertising platform. As a customer, you get the ability to bid for space on the web, ahead of people offering a similar service. If you want to know what the real nitty gritty about this company and how it all works: Advertising on Google AdWords: An overview. You can have a lot more pointed advert to people who are searching for that very product or service. As you can see, this is very attractive to both sides of a potential transaction, as both a searcher and advertiser.


The numbers quickly for the quarter, those are important: 14.9 billion Dollars of revenue (the Google segment represents 92 percent of that), 10.74 Dollars Non-GAAP EPS for the quarter, 56,52 billion Dollars of cash on hand, which represents at the market close 19 percent of their market cap. Paid clicks increased 26 percent versus the comparable quarter last year, and 8 percent more than the prior quarter. Motorola continues to make a loss, registering an operating loss of as much as 248 million Dollars. I suppose that is "OK" when compared to the overall operating income for the third quarter was 3.44 billion Dollars. 23 percent of revenues, so you can see that the margins for a pure advertiser with some pretty nifty algorithms is a pretty good business! What we don't even mention and what they don't mention (except in the annual report) is that the Android operating system sits on roughly two-thirds of all smartphones. But two-thirds of all Android users don't pay for applications, that was some info I found, using a Google search. In the release the word Android is not mentioned. In the slide show it appears once. At least in the annual report it appears 13 times!


This business however is only 15 years old. And has been listed for only a little over 9 years, it is a young business, but is exceptionally well known for a business that is that small, possibly because it is synonymous with internet search. With a market capitalisation of nearly 300 billion Dollars and the wealth created for many over less than a decade, this is certainly an example of the new industrialisation of America. The name Larry Page, Sergey Brin (the founders) and executive chairman Dr. Eric Schmidt are household names, not only in America, but also across the globe in both tech and financial world. The name Google itself is a misspelling of the world googol, which as per the Wiki listing on the name: refers to the number represented by a 1 followed by one-hundred zeros. Or, 10 to the power of 100. 10¹⁰⁰

In the very first founders letter Sergey and Larry had this to say about the company:

As a private company, we have concentrated on the long term, and this has served us well. As a public company, we will do the same. In our opinion, outside pressures too often tempt companies to sacrifice long term opportunities to meet quarterly market expectations. Sometimes this pressure has caused companies to manipulate financial results in order to "make their quarter." In Warren Buffett's words, "We won't 'smooth' quarterly or annual results: If earnings figures are lumpy when they reach headquarters, they will be lumpy when they reach you."

Why is that important? Because it is. It really is. Jack Welch was accused of smoothing earnings, it suddenly struck me that I had read that last year, and then yes, I found it (using a Google search): GE's Jack Welch Knows About Cooking the Books. But that is another story entirely. Those three key individuals are very important to investors and to the company. In the annual report they are referred to on a first name basis. Plus, the three of them have 92 percent of the more important voting stock. There is a segment under business risks in the last annual report which is headed: If we were to lose the services of Larry, Sergey, Eric, or other key personnel, we may not be able to
execute our business strategy.


Wow. So that is why there was all the fuss about Sergey Brin when found to be having a relationship with a Google British executive, whilst he was married. He still is, on both fronts. C'mon Sergey, C'mon. Eric Schmidt has been called a serial womaniser, with a whole string of mistresses. Wow. Larry? Well, believe it or not, Larry Page once dated Marissa Mayer, the Yahoo! CEO. I guess he has the better job. But should this worry you, or should you separate individual lives from the geniuses mentioned in the annual report as being key to executing their business strategy? What do you think?

Larry, Sergey and Eric effectively have 65 percent of the voting power. They will determine the way that the company is driven (driverless cars and the like) over the coming decades. You are essentially leveraging off their expertise and the way that they see the world and the trends unfolding in front of them. Google has many different businesses, but only one real contributor. Therein I think lies a big opportunity, that still exists. Driverless cars. Google glasses. The Nexus tablet. Google + and the app store, I nearly forgot to mention them monetizing YouTube, which my kids absolutely love! They have plenty of lines in the water, trying to connect the world and make information more seamlessly available. There is more and more daily. Cisco reckons that there will be 121 exabytes (28 trillion MP3's or 30 billion DVD's) in global IP traffic by 2017. Amazing. So there will be more to search.


The stock price in the aftermarket reacted positively to this earnings beat, I am pretty sure we will see some upgrades coming. In the aftermarket (premarket) Google is trading at 963 Dollars. Closing in on that 1000 Dollar mark. For as long as I can remember the stock looks expensive. You are always going to pay up for quality. We will continue to accumulate what is a high quality company that is able to continue to offer transformative services to their ever increasing customer base. The tip of the iceberg in terms of usage, that is the way that I look at it. Buy.