Google Is Fine, Just Not Exciting

 | Apr 17, 2014 | 10:30 AM EDT  | Comments
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FB

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With the earnings report from last night for Google (GOOG, GOOGL), some folks were immediately disappointed. In after-hours trading, the stock immediately dropped to the $520s, off 5% from where it closed. It was an old song for Google: increased paid clicks but the profitability of each click went down.

There were many, including me, who paid a lot of attention to this a couple of years ago when the transition to mobile was still in its beginning stages. If each click is going down in profitability, that's bad, right?  It means mobile is less profitable, right?  It means less cash and earnings coming in the door, right?

This caused a lot of worry.

Here's something to think about: Prior to the financial crisis in 2008, in late 2007, Google topped out at around $355 (in today's split-adjusted terms).  It then sank like a stone to a bottom in November 2008 of $131. Then, as the market reflated in 2009, Google's stock rose to a high at the end of that year around $300.  But then, going into 2010, as the fear of what mobile would do to Google's profits, the stock slumped back down to $218 in July 2010.  After staying flat for most of the next two years, it finally took off and hit $600 earlier this year.

The fog over Google's stock price from 2010 to 2012 was how it was going to handle the less profitable mobile clicks issue. And how was that resolved?  Why did the stock suddenly explode from $281 in June 2012 to $607 in late February this year?  First, Facebook (FB) went public and it turned out that it didn't suck all the advertising dollars away from Google -- not even close.  But, most importantly, investors decided that, even though the cost-per-clicks continued to drop, the earnings per share kept going up.

So when I hear people worrying about last night's report because of declining cost-per-click, I shrug my shoulders. Google's fine. There's no alternative for advertisers. The world has moved to mobile and there's still no alternative for advertisers.  If that's where the audience is, Google will continue to make money.

For me, though, I've almost never owned the stock. It just doesn't excite me.  I would rather look for the next big tech names that are going to be more volatile and, hopefully, if I do my job right, more profitable.

One last point on Google's stock performance since 2007: It's assumed that Google is now much more beloved by Wall Street, and that Apple (AAPL) just keeps making mistake after mistake.  However, from Aug. 31, 2007, until today, Google's stock price has more than doubled while Apple's has nearly quadrupled.

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