During the Google, Q1, 2014 Earnings Conference Call, Patrick Pichette, CFO, presented a set of headlines on business performance:
- Google’s revenue grew by 19% year over year to $15.4 Billion, which was down 2%, quarter over quarter.
- Google Sites revenue was up by 21% year over year, to $10.5 Billion.
- Network revenue grew 4%, to $3.4 billion.
- Other business revenue grew by 48%, to $1.6 Billion. In this category, Chromecast sales were a strong performer
Pichette provided his own judgement of the quality of business performance for the first quarter. Interspersed among his remarks were a lot of “good”, “very strong”, adjectives. But are these results typical of a still early stage ISV? Or are they, actually, signs of a maturing ISV struggling to retain the early shine of meteoric growth results.
Perhaps one can argue the performance of the “Other Business” group still retains the growth characteristics of an early stage ISV, but how many Chromecasts will Google need to sell (with an MSRP of $35.00 per Chromecast) to power this vertical to some sort of meaningful stature as a revenue producer for the company? In contrast, a very mature ISV, Microsoft®, recently reported meteoric results for Office 365, a Cloud, SaaS offer requiring no hardware, shipping, etc.
It may be time for analysts and investors to close the book on the question and just treat Google, going forward, as a mature ISV. A check of the GOOGL Class A stock P/E ratio on Thursday, April 17, 2014, reveals near parity with MSFT: GOOGL carries a P/E Ratio for trailing 12 months of 14.99, just 2% higher than MSFT at 14.68 for trailing 12 months.
Despite the recalibration of Google’s stock prices, analysts continue to make a big deal of the pace at which revenue growth has decelerated, perhaps more from a concern over the actual forward potential of the entire online advertising market (of which Google is clearly the leader) than anything else. This concern makes sense given the comparatively poor performance of the display network vs. Google Sites businesses.
If the concern is justified, then one would think the valuations of online businesses like Yahoo, Twitter, and even Facebook may soon experience versions of the same recalibration to better align them with their more mature ISV competitors.
Disclaimer: I’m long MSFT and have no current position in Google, Twitter, Facebook, or Yahoo
© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved