"As you can see, the majority of the business is still very much based on advertising. The third segment is called Other Revenues and accounts for $1.84bn or 11% of total sales. This includes Googles many side businesses which either direct traffic to their site (Android) or does something completely different to it's current model. Businesses such as Motorola, Nest, Android, Driverless Cars, Google Glass, Google+ Gmail and YouTube. The list goes on. I really like this innovative side to Google, they are going to hit the jackpot soon with one of these."
To market, to market to buy a fat pig. The JSE (and world markets) finally had the sizable rally that market trackers have been hoping for. The JSE closed up 2% on Friday and the S&P 500 was up 1.3%. Could this be the turnaround and the start of the market recovering the 10% that it has lost over the last couple weeks? Or is this as traders will say, "dead cat bounce", which essentially is a temporary recovery followed by more pain.
I can't tell you what the market is going to do today, let alone a week from now, but what I am certain enough of , enough to put my money into these stocks, is that quality companies will continue to grow and still be around a decade from now. If I had given you the current market prices a month ago, you probably would have jumped at the opportunity to buy? Who remembers the correction that happened at the beginning of the year? Not many people, which will be the case for this current correction in a year's time.
Byron beats the streets
When Larry met Sergey. 1995 at Stanford University and by 1996 they had built their first search engine. The name Google is a play on the word googol which is a mathematical term for a 1 followed by 100 zeros (nerd alert). Today Google is a regular in everyones vocabulary. It has an answer for everything and more importantly it has the answer that you were most likely looking for.
On Thursday evening Google released third quarter results for 2014 which slightly missed expectations. Revenues came in at $16.52 billion, up 20% from the same quarter last year. The company splits up it's revenues into 3 segments.
Site revenues came in at $11.25bn and represents 68% of all their sales. This is of course using the Google search engine for advertising. What a fabulous business. It is an advertisers dream, the potential clients tell you exactly what they are looking for by typing it into the search bar and boom, your product pops up on their screen. Paid clicks increased 17% for the period.
Network revenues came in at $3.43bn which represented 21% of sales and was up 9% on the previous period. This division entails partnerships with other sites who use the Google advertising platform to host adverts on their site. Google then share the revenues with the host site. It's a win win. Google have a great and efficient advertising platform for others to utilise while Google outsource some of the advertising reach.
As you can see, the majority of the business is still very much based on advertising. The third segment is called
Other Revenues and accounts for $1.84bn or 11% of total sales. This includes Googles many side businesses which either direct traffic to their site (Android) or does something completely different to it's current model. Businesses such as Motorola, Nest, Android, Driverless Cars, Google Glass, Google+ Gmail and YouTube. The list goes on. I really like this innovative side to Google, they are going to hit the jackpot soon with one of these. YouTube for me is extremely exciting (I think that advertising from YouTube is included in Site Revenues).
So far this year the company has spent $1.6bn on research and development which is a healthy 34% increase from last year. I'd also expect further acquisitions, the company is sitting on a
whopping $62bn worth of cash and equivalents. Businesses like Google and Facebook are becoming more like investment holding companies within the technology world. Yes they still rely heavily on the core model but eyes are always open for innovative ideas that may have no synergies with their current businesses.
Operating income for the period came in at $3.72bn which represented 23% of revenues. Understandably this figure came down from the 27% achieved during the comparative period because the business is reinvesting heavily. Per share this equated to $6.35 with expectations of around $20.56 for the full year. Trading at $522 (it's down from it's recent highs of $605) it affords a foreword multiple of 25. Don't forget that they are sitting on $62bn worth of cash which is nearly 20% of it's market cap.
We love this revolutionising business as an investment and I feel it will continue changing the world, especially with such great resources.
The recent pull back represents a great buying opportunity.
Things that we are reading, that we think you should be too
The stock market is where differing opinions, emotions and psychologies all come together -
Why I Love the Stock Market.
"Over the very long-term the stock market tracks the fundamentals - company earnings, dividends and the growth in the economy to some extent, but over the short-term it's really just a huge experiment in human behavior and emotions."
Here are some reasons why the global economy is not on its knees:
New Jobless Claims Fall to Lowest Since 2000 -
"Given that the nation's population has grown considerably since then, the proportion of the work force applying for unemployment benefits is even smaller. Jobless claims are a proxy for layoffs.".
The second reason,
European Car Sales Growth Revives on Price Cuts -
"The sales increase in September marked the 13th consecutive month of growth, the longest string of gains since the ACEA began compiling registration figures in 1990". I may have cherry picked data points to prove my point because there is lots of negative data around, but it isn't all gloom and doom out there.
Why asking,
"Why Did the Stock Market Decline?" is the wrong question.
This piece says the same thing as our excerpt from Buffett in Fridays blog, just in different words -
Why Investors Must Understand Value.
Home again, home again, jiggety-jog. The markets opened green this morning, with the only noticeable red coming form the Gold stocks. Asian markets are also up today but the European markets are down, I haven't seen any compelling rationales yet but I am sure there will be headlines soon trying their best.
Sasha Naryshkine, Byron Lotter and Michael Treherne