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Google Doubles its Profits
WinEveryGame writes "Google just announced a very strong quarter. The internet search engine said it had net income of $721m, or $2.33 per diluted share, up from $343m a year earlier. Wall Street had expected earnings of $1.94 per share. Earlier this week Yahoo had announced lower than expected earnings."
Well then what do you want to measure profit as? Gross profit? Because we all know how accurate a measure of gross profit is.
Net income is the most effective measure of profit there is. It's revenue minus pretty much every expense you can think of. Isn't that more or less the definition of profit?
The EPS ratio is a bit absurd. But investing isn't just about the current earnings of the share, it's about the potential earning of the share in both the short term and long term future.
:)
Now, as to whether or not this justifies the ridiculous EPS ratio, I don't know. It depends on how large you believe the potential Internet advertising market is, or if you believe that Google can begin to branch out into non-advertising based endeavors.
Coincidentally, the captcha for this post was "predict"
Reading comprehension 101: Google's engineers are valuable != Google values its engineers.
GP used the later, you understood the former, they have fairly different meanings.
"The way we can tell it's C# instead of Haskell is because it's nine lines instead of two." -- wadler
That's $2.33 a quarter, buddy. Google's P/E is around 60, which is triple the typical blue chip, but typical blue chip companies are not growing at 70% annualized growth rates. And that's just the trailing P/E. Their forward-looking P/E is 30. Blue chip companies like Coca Cola and General Electric are trading at P/Es of around 20. And Google's profit margins, at around 25%, continue to astound.
Google is quickly becoming a cash cow. They have $9 billion in cash right now. Microsoft has around $30 billion. That is a truly incredible comparison, given Google's relative youth.
It's an expensive stock, but hardly as mis-priced as you seem to think.
The earnings does magically not get added to the share price, so you still have only $387, UNLESS the share price increases OR the company pays the full earnings out as dividends (in which case you'd have to subtract tax on it anyway, so your net return would be even lower than 0.6%, the same would apply if the share price increase and you sell).
Most tech companies, though, never pay dividends (and if they do, it will certainly never be more than portion of their earnings - and so in this case 0.6% is the upper limit) - people speculate in continued share price growth.
So if you hold the share the maximum return is equal to the earnings per share. In Google's case this is far below what you'd get at far lower risk elsewhere (case in point: I get around 5% on my UK savings account and short term bonds)
Of course, if you sell the share you may or may not make money from fluctuations in the share price which may make it a worthwhile investment.
Grossly simplified, people look at the earnings per share because it is one of many measures of whether the share is cheap or expensive. A high earnings per share (in percent of share price) means there is a higher likelihood of continued share price growth (but note that many other factors will also play in). A low earnings per share in percent of share price means that continued share price growt is unlikely unless the market believes that earnings will continue to grow rapidly to catch up with the share price increases.