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Commentary

Google Shares Look Attractive

Robust demand in its core business and stronger expense discipline make the wide-moat tech firm’s shares look like a bargain today, writes Morningstar’s Rick Summer.

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 Google (GOOG) posted strong second-quarter results, demonstrating robust demand in its core business and stronger expense discipline. We continue to believe the shares are undervalued, even after the strong move after results were announced. We are sticking with our wide moat rating and $715 fair value estimate at this time.

Total revenue grew 11% (18% on a constant currency basis) to $17.7 billion, while revenue excluding traffic acquisition costs grew more than 13%, as the firm realized strong top-line growth even as it de-emphasized payments to distribution partners, including Mozilla as a premier search provider. As users migrate to mobile devices, where they can choose to use applications as opposed to browsers and search, Google's results demonstrate the importance of Internet search in the overall advertising value proposition, in our view. The significance of Internet search and Google's wide moat in the online advertising sector remain key inputs to our investment thesis.

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