Google Surges: What Wall Street's Saying

NEW YORK (TheStreet) –– Second-quarter results from Google (GOOG) demonstrated that even though cost-per-click (CPC) continues to weaken year over year, the company's bundling efforts appeared to be paying off, even if they're taking longer than expected.

Mountain View, Calif.-based Google noted CPCs, a key advertising metric, remained flat sequentially but fell 6% year over year. Google also noted that CPCs for Google sites fell 7% year over year and 2% sequentially, but that network CPCs rose 2% sequentially, despite falling 13% year over year. Google took measures last year to start having advertisers buy ads on all platforms (mobile and desktop) all at once to mitigate the weakness seen in mobile ads.

Though CPCs remained flat, paid clicks, "which include clicks related to ads served on Google sites and the sites of our Network members," continued to surge. Paid clicks rose approximately 25% year over year and 2% sequentially. For the first time, Google gave some detail on how paid clicks are performing at some of its properties, including Maps, YouTube and Finance.

"YouTube engagement ads like TrueView, and other owned and operated properties like Maps and Finance, increased approximately 33% over the second quarter of 2013 and increased approximately 6% over the first quarter of 2014," the company said in a press release.

For the second quarter, the search giant reported earnings of $6.08 a share, missing analysts' estimates of $6.23 a share by 15 cents. Revenue grew 21.7% from the year-ago quarter to $15.96 billion. Analysts surveyed by Thomson Reuters expected revenue of $15.61 billion.

Shares of Google were higher in early Friday trading, gaining 1.9% to $584.59.

Though Google has focused on getting the mobile part of its advertising business right, the company is hellbent on expanding into other adjacent areas, particularly shopping. The company's product listing ads (PLAs) compete directly with companies like Amazon (AMZN), allowing users to search for an item and buy it right there without having to go to another site like Amazon. On the company's earnings conference call, Chief Financial Officer Patrick Pichette noted that PLAs drove three times more traffic in the second quarter than they did last year.

Pichette also noted that another Google shopping program, Google Shopping Express, which allows users to get overnight or same-day delivery, is available now in all of Northern California, not just San Francisco.

Analysts by and large were positive on Google's quarterly earnings, with several of them raising their price targets. Here's what a few of them had to say.

Barclays Capital analyst Paul Vogel (Overweight, $650 PT)

"Google reported a very solid quarter with revenue beating our estimate (we were above consensus for the quarter) with operating income coming in slightly ahead as well. We are encouraged with overall paid click growth of 25%, which was in line with our estimates and still very healthy. Google sites paid click growth of 33% did decelerate some from Q1 but was higher than the growth posted in Q2 2013 and gives us comfort that the company should continue to experience healthy click rates growth going forward. Additionally, while we don't share the concerns over CPC that many do, we see the flat q/q pricing and smaller y/y decline in Q2 versus than the prior two quarters as a modest positive. We continue to rate Google Overweight as we believe there continues to be an opportunity for the company to consistently grow revenue and earnings at current rates for an extended period of time. With shares trading at 17.5x 2015E earnings and a PEG of 0.9 we think there is compelling value in owning Google at current levels."

UBS analyst Eric Sheridan (Buy, $670 PT)

"Most investors were looking for strong revenue trends & some margin recovery from Google - they solidly delivered a beat on the first item but slightly disappointed on the second. That said, we think that such impressive revenue growth (especially at 2015 valuation metrics more akin to more mature media businesses) will be the main takeaway for investors. Given historical seasonal outperformance against the SPX in 2H, we think the risk/reward on Google at these levels is excellent as the company begins to produce incremental revenue growth on the back of its investments in online video, e-commerce, global connectivity & consumer/enterprise mobile computing."

JPMorgan analyst Doug Anmuth (Overweight, $670 PT)

"Google posted strong 2Q14 top-line results with 21.1% Y/Y FX & hedging-neutral gross revenue growth, with acceleration across all three segments-Sites, Network, and Other.
Net revenue of $12.7B was 3% above our and consensus estimates, with the upside coming from Sites and Other."

Youssef Squali (Buy, $650 PT)

"We're reiterating our BUY and increasing our PT to $650 from $630, following solid 2Q:14 results with accelerating top line growth. We believe Google continues to gain share both in Search and Display, fueled by its own sites, which is impressive considering its leading position in both segments. This bodes well for 2H:14. Google remains one of the best plays on global online advertising growth, and at 10.5x EV/EBITDA/18.6x P/E our FY:15 estimates, we find the shares compelling. Google also announced the departure of Chief Business
Officer, Nikesh Arora for SoftBank, to be replaced by Omid Kordestani."

-- Written by Chris Ciaccia in New York

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