Thursday, 17 April 2014

Deutche Bank reduces Google price target to $625 after in-line Q1 update

The Key Take-Away Google’s 1Q results were broadly in-line with consensus, with net revenue of $12.2B (-2% q/q) and core EBITDA of $6.01B. The tone of the conference call was upbeat and consistent, highlighting the solid growth in Google Websites (+21% y/y), Licensing/Other (+48% y/y), and ROW (+30% y/y), with laggards UK (+11% y/y) and Network Sites (+4% y/y). Overall, we continue to view Google as a top idea, and a safe-haven during times of high volatility in consumer Internet. Buy.

Positive trends in 1Q Aside from the one-time expense items related to recent M+A, 1Q14 results were largely in-line across the board. Website revenue remains a critical metric for the health of Google’s overall search and YouTube businesses, and posted strong growth +21% y/y to $10.47B (vs. cons $10.47B). Google will begin disclosing paid clicks and CPC based on Websites and Network starting in 2Q14, providing investors with greater transparency. The pace of gross margin compression (GP to net revenue) is down to a manageable 80bps after around 500bps throughout 2013, as Google rolls through on Nexus and accounting policy changes.

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