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Ahead of the Bell: Google 3Q signals ad rebound

Lionseye insights from AC Lion
Google shares rise as 3Q results signal Web ad rebound with search leader as prime beneficiary
NEW YORK (AP) — Google Inc. shares rose in premarket trading after the company’s third-quarter results signaled that the Internet advertising market is experiencing a turnaround and that the search leader is set to be the prime beneficiary.
At least one analyst said the company’s shares could hit $700 apiece, a level not reached since December 2007.
The Mountain View, Calif., company’s results were “stellar,” said Jefferies & Co. analyst Youssef Squali, lifting his price target on the stock to $600 from $470, and raising his earnings estimates for the company.
Canaccord Adams, meanwhile, raised its target by $140 to $700, saying YouTube results are improving and advertisers’ budgets are likely to ramp up for the holiday season.
Google shares peaked at nearly $750 in November 2007, just before the start of the recession. In the third quarter, the company posted its biggest quarter-to-quarter sales increase — 8 percent — since the end of 2007.
Google shares were up $17.34, or 3.3 percent, to $547.25 in premarket trading Friday. They’re already up 72 percent this year, but the stock is still attractive given Google’s prospects of 15 to 20 percent growth every year for the next several years, Squali said in a note to clients.
“Advertisers both in the U.S. and overseas are coming back,” Squali concurred, and “committing bigger budgets.”
Continued growth is also likely to come as search traffic increases and consumers’ click-through rates on ads rebounds, said Merriman Curhan Ford in a client note. Additionally, there are revenue growth opportunities in display ads and mobile phones, according to FBR Capital Markets analyst Heath Terry.
“Google is the company best positioned to benefit from the recovery in the ad market and overall growth in Internet usage,” Terry wrote. He has a price target of $680 on the shares.
Google is considered a barometer for the state of online commerce because its search engine serves as the hub of the Web’s largest advertising network.
Meanwhile, analysts commended Google for cutting expenses, which bolstered earnings. Year-to-date, capital expenditures are down 70 percent compared to last year, said William Blair analyst Megan Friedman in a note to investors.
Google executives said the company is set to ramp up spending, increasing hiring, buying up tech startups and spending more on computers.
In the third quarter, Google earned $1.64 billion, or $5.13 per share, a 27 percent increase from last year.
Excluding expenses for employee stock compensation, Google said it would have made $5.89 per share — above the average estimate of $5.42 per share among analysts polled by Thomson Reuters.
Revenue for the three months ending in September climbed 7 percent to $5.94 billion. That is Google’s fastest revenue growth rate so far this year.Thanks to Mike Adler for suggesting this timely read from Yahoo Finance.