This Tech Titan is Headed Higher

Ishfaque is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Shares of tech heavyweight Google (NASDAQ: GOOG) are down from its 52 week highs, primarily driven by fears of losses arising from its Motorola acquistion and a decline in Cost per Click (CPC) at the end of Q3 2012. While both those concerns are material, both of them happen to be short-term in nature and are a sign of changing business conditions. However, in the long run, Google has substantial upside. 

Rapid Growth 

Google's total revenues are up 45% Y/Y ending Q3 at a staggering $14.1 billion. Google powered websites grew 15% Y/Y and Google's Network Members' revenue increased 21% Y/Y. 

Paid click growth for was up 33% Y/Y. Cost per click (CPC) was down 15% Y/Y and decline in CPC was also impacted by currency headwinds, excluding currency impact, it would have been down only 8% Y/Y. 

Motorola's gross revenue came in at $2.6 billion. And the operating loss for Motorola was $151 million for Q3 2012. It is winding down operations and reducing headcount substantially. This was disturbing for investors, even though the acquisition from Google's standpoint was for the intellectual property and the synergies it can create with other Google's services. 

Trending Towards Mobile 

The number that scared investors away was the decline in the CPC, however a number of reasons led to that decline. Growth in mobile and tablets globally was a key factor for that decline, coupled with growth in emerging markets were CPC is relatively lower, along with weaknesses in Europe.

Cannibalization from mobile and tablets was likely a big factor in the decline in CPC. Google enjoys a lower margin for mobile ads, compared to desktop and tablets which resulted in the lower Cost-per-click.

The best part is that paid click growth of 6% Q/Q, which means the number of ads portrayed increased 6%, while the average price per ad went down due to increased ads being channeled through mobile. 

The Good News

Google's mobile run rate had phenomenal growth through Q3 2012, at more than $8.0 billion, which is more than triple the Q3 2011 mobile run rate of $2.5 billion. The lion's share of this $8.0 billion was mobile ads, and the rest coming from content and apps in Google Play. Google Play is the content store of Google, which is similar to Apple's (NASDAQ: AAPL) iTunes service, where half a billion Android powered devices and Nexus 7 tablet users can download music, movies and other content conveniently. Google is now competing with Apple on multiple fronts, and doing very well.

The Nexus 7 tablet got great reviews in the market and sold at least a few million units, even though Google did not disclose figures, its Other Revenues line item increased 51% Q/Q to end Q3 at $666 million.

Now to get a glimpse of Google's superb positioning in mobile, compare the mobile run rate of $8+ billion with its rival in the online ad market space, Facebook (NASDAQ: FB), which has a mobile ad run rate of only $600 million. 

Impressive Strides 

Google+ has gained decent momentum in the social media space, and it now boasts of 235 million active users. While the number is less than a quarter of Facebook's 1.01 billion users, it has managed to get traction  for Google+ Enterprise where organizations of all sizes are starting to use hangouts, and other tools to work together and get things done from any location.

Google Shopping is now providing product information with pictures, pricing, and inventory information for more than 1 billion products from thousands of merchants. It is even monetizing the platform with Product Listing ads.

Google Chrome is going to be rolled on a much wider scale on a number of mobile devices in the future. The Google Chrome experience on mobile devices is identical to desktop, and will further accelerate mobile monetization.

YouTube is fast proving to be a robust alternative to TV and paid subscriptions, and now, YouTube has 200 times more video advertisers than the average US television network. 

Separating the Wheat from the Chaff

Google is a hub of innovation, it is always at the forefront of developing new products and entering new markets to provide end consumers a better experience. Revenues jumped 45% Y/Y to $14.1 billion, it generated Free Cashflow of $3.1 billion in one quarter, stands at a mobile run rate of $8+ billion, and paid click growth is up 6% Q/Q and still investors manage to dump the stock on fears of declining Cost-per-click. Its about time investors separate the wheat from the chaff.

ishfaque has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Facebook, and Google and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Apple, Facebook, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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