Google 3rd quarter results

When Larry met Sergey in 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.