Search engine king Google (Nasdaq: GOOG, GOOGL) reported third-quarter earnings after the bell today (Thursday).
Here's what you need to know - and our bottom line on how to play Google stock right now:
GOOG stock: Shares plummeted as much as 6% after earnings release, then settled around a 3% decline. GOOG stock had been down all day and closed with a 1.04% loss at $524.51 a share. (By the way, if you're wondering about the difference between GOOG and GOOGL stock, here's youranswer...)
Earnings miss: Google reported earnings per share (EPS) of $6.35 per share on $16.52 billion in revenue. That's under analyst expectations of EPS of $6.53 a share on $16.57 billion in revenue.
The good news: That's still a 20% boost in revenue compared to the same period a year ago. Here's what Google CFO Patrick Pichette had to say: "Google had another strong performance this quarter, with revenue up 20% year on year, at $16.5 billion. We continue to be excited about the growth in our advertising and emerging businesses."
The bad news: Earlier today, we advised readers to watch ad growth. That's because most of GOOG's revenue comes from clicks on paid advertisements when users are performing searches. Specifically, we highlighted two numbers: cost-per-click rates (what advertisers pay every time a user clicks on a search ad) and paid click growth (money Google gets when users click on ads on its sites). Today's report shows CPC rates declined 2% year over year, but they're consistent with Q2 and better than some analyst estimates. Paid clicks grew 17% year over year - 5% under projections.
Spending took its toll - but that's not a bad thing: We've seen some groundbreaking innovations from Google this year. In August, it announced a $300 million deal to develop the fastest-ever undersea cable that connects Japan to the United States. Money Morning Defense & Tech Specialist Michael A. Robinson - a 30-year Silicon Valley veteran and Pulitzer prize nominee - highlighted Google's 3D printing breakthrough in September. The company's been spending millions in the healthcare sector. This week, it began testing a feature that allows users to video chat with a doctor while searching for medical symptoms. Also this week, reports came out that the company will release a new tablet, the Google Nexus 9, in early November.
On one hand, Google's been spending a lot of money, and that's taking a toll on profit margins. The company shelled out $2.42 billion in capital expenditures this quarter, "the majority of which was for data-center construction, production equipment, and real estate purchases." Last quarter it set a new record with $2.6 billion in capital expenditure.
On the other, a long list of forward-thinking moves in 2014 is a good sign for Google stock. "You'd be hard-pressed to find a company that knows more about sophisticated technology than Google," Robinson said in September.Google said in its release today it "expect(s) to continue to make significant capital expenditures."
The "wild card": While GOOG doesn't break out YouTube's ad revenue, it'll likely be discussed on the conference call. It's of particular interest this quarter because Google implemented a premium sales initiative called "Google Preferred." Preferred pairs advertisers with a premium pool of ad space on targeted YouTube content. This week, Google announced Preferred sold out due to high demand. A September report from global investment firm Jefferies said YouTube's estimated valuation is around $40 billion. That would make it worth more than Twitter (NYSE: TWTR).
Money Morning's bottom line: Google stock's down nearly 10% in the last month. Take advantage of that and buy GOOG at a discount, if you can afford it.
"Google is a quality stock with rock-solid fundamentals. In fact, it's one of my all-time favorite tech stocks," Money Morning Defense & Tech Specialist Michael A. Robinson said earlier this year. "I expect Google to grow its earnings per share (EPS) this year by 21%, a rate at which profits would double in about 3.5 years."
Keep in mind that a double on $1,000 invested in a $500 stock results in the same amount of money as a double on $1,000 invested in a $10 stock.
Here at Money Morning, we believe tech investments are an essential step in wealth building. The sector creates some of the richest investors - and continues to get more lucrative. It's no surprise that Ebola stocks are the hot topic in tech right now. A number of companies are racing to find a treatment, and investors are piling in. But here's what you need to know about them...