Shares of Google (Nasdaq:GOOG), which not long ago was in Wall Street’s doghouse, cracked the $1,000 level after the search engine giant posted quarterly results that were far better than the most optimistic of analysts’ expectations.

Net income surged 36% to $2.97 billion, or $8.75 per share, compared with $2.96 billion, or $6.53 per share, a year earlier.  Revenue at the Mountain View, Calif. company surged 12% to $14.89 billion.  Excluding one-time items, profit was $10.74 and revenue excluding fees Google pays partners was $11.92 billion.  On that basis, Google was expected to earn $11.62 billion, according to Bloomberg News. It was the company’s best profit growth in more than a year.

The stock closed Friday's session at $1011.41, an increase of 13.80%.  Google now has a market capitalization of $337 billion, the third largest among publicly traded companies behind Apple (Nasdaq:AAPL) ($462 billion) and Exxon Mobil (NYSE:XOM) ($385 billion). Friday’s action added some $40 billion in market capitalization to Google, which exceeds the entire market capitalization of Yahoo! (Nasdaq:YHOO), which as of Friday stood at $34 billion.

“The results clearly demonstrate that Google remains the best of breed, best of class in the online advertising space, really within the Internet space itself,” Victor Anthony, an analyst at Topeka Capital Markets told Bloomberg News.

Google countered the naysayers who had expressed concerns about the company’s declining advertising rates by offering a new format that expands the reach of advertisers to mobile devices.  In addition, Android devices continue to be popular. CEO Larry Page noted that 1.5 million smartphones using Google’s free operating system are activated each day.

Paid clicks on ads served by Google sites and those served by the members of its network rose 8% on a year-over-year basis and jumped 26% from the second quarter.  Meanwhile, average cost-per-click fell 8% over the third quarter of 2012 and 4% over the second quarter.   Revenue on Google sites jumped 22% on a year-over-year basis, better than the 18% gain in the previous quarter. 

Motorola Mobile, the smartphone maker acquired by Google for $13 billion in 2012, continues to be a drag on earnings. The business posted an operating loss of $248 million in the quarter, higher than the $192 million loss a year earlier.  Revenue plummeted 34% to $1.18 billion.  Google unveiled the Moto X in August in order to reverse years of market share declines.

Even with today’s run-up, Google is not a terribly expensive stock. Its price to-earnings multiple is about 25, well under its 5-year high of 30 based on current earnings. When calculated using this year’s earnings, Google’s multiple is 22.9, higher than Apple’s 12.9 and Facebook’s (Nasdaq:FB) 74 level.

Wall Street thinks Google’s stock has room to run. Many analysts raised their price targets.  Deutsche Bank thinks it may hit $1,220, ahead of Credit Suisse’s $1,200 target and Jefferies’ $1,150 forecast.  Even with today’s run-up, Google has gained 42% over the past 12 months, lagging Facebook and Yahoo, which have both more than doubled.

The Bottom Line

Google is not a stock for the faint of the heart.  It has been volatile in the past and will continue to be so in the future. For people with high tolerance for risk, this is a good stock. Wall Street has continually underestimated its potential for growth. There doesn’t appear to be anything on the horizon that could potentially slow it down. However, investors should wait for a pullback before pulling the trigger.

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    Top 2 ETFs Targeting Startups

    Learn about the best ways to gain exposure to startups. Startup investing has become quite popular and is slowly being democratized.
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  10. Stock Analysis

    The 6 Worst Technology Stocks of 2015

    Learn about the technology sector and how it has performed in 2015. Understand the six worst performing technology stocks by average return in 2015.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. Earnings Per Share - EPS

    The portion of a company's profit allocated to each outstanding ...
  5. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  6. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What are some examples of Apple and Google's best-selling product lines?

    There are many good examples of product lines in the technology sector from some of the largest companies in the world, such ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!