Google's 4Q Results Lead to Market Overreaction
The Internet bellwether's fundamentals are still in place, and management's long-term view will ultimately generate strong shareholder returns, says Morningstar's Rick Summer.
Google (GOOG) announced fourth-quarter earnings Thursday against a backdrop of high expectations, with results modestly ahead of our forecast but meaningfully below consensus, resulting in a dramatic sell-off in the shares. We are not changing our fair value estimate and consider the shares to be undervalued, although we would prefer a bigger discount before encouraging new investment.
Results were strong across the board, with quarterly revenue from Google properties (primarily including Internet search and YouTube) and revenue from ads placed on partner sites growing 29% and 15% versus 2010, respectively. With total advertising revenue growing 27% versus 2010, we still believe Google is modestly gaining market share in online advertising, a remarkable feat given the size of this Internet behemoth and a testament to its wide economic moat. Additionally, controlled spending helped improve quarterly operating margins to 33%, ahead of our expectations.
Rick Summer does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.