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Currency, Investment Headwinds Don't Curb Our Enthusiasm for Google

Short-term issues are weighing on Google's top and bottom lines, but we still think the wide-moat firm remains a compelling investment at today's stock price.

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 Google (GOOG) posted strong quarterly results that were modestly below our top-line forecast, but revenue mix (tilted more towards Google properties) and lower expense rates for traffic acquisition costs (TAC) helped the bottom line. We think the company's foundation as the dominant Internet search provider will feed into other critical assets such as YouTube (video) and Android (mobile) to propel double-digit growth in revenue and earnings for the next several years. Our wide economic moat rating and $715 fair value estimate both remain, supporting a compelling investment thesis at the current stock price.

Total revenue grew 12% to $13.9 billion, but the currency impact made for a 5% headwind. This strong constant currency growth outpaces our estimate for 2015 industrywide digital advertising growth, primarily because Google provides advertisers a unique capability to better target advertising in a scalable way, in our view. Clearly, the crown jewels are Search and YouTube, as Google-owned properties generated 68% of overall revenue, growing 14% on a GAAP basis. Other initiatives, such as Google Play, Nest, and Google Cloud continue to be small contributors that are adding little to the top or bottom-line results.

Rick Summer does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.