Google Stock is Looking Good Again as Company Gets Back to Basics

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Is Google (GOOGL, GOOG) back to its old self again, taking the web by storm and raking in money hand over fist? That might be overstating things a bit, but with its first earnings beat in seven quarters yesterday, Google stock may well be en route to being investment-worthy again.

Google Stock is Looking Good Again After EarningsIt’s not the Google earnings numbers that make GOOGL impressive again, however. It’s the backstory that led the company to those second-quarter numbers.

Long criticized for reckless spending, the company’s clamp-down last quarter proved it can spend less money without the organization coming completely unglued.

Oh, and as it turns out, the world’s migration to mobile devices isn’t a ticking time-bomb for Google, either.

Google Earnings Leave Little To Be Desired

Investors were headed into the Google earnings report with a bit of skepticism. CEO Larry Page had made a point of explaining just a few days prior that even he was finally on board with the idea of cutting back on expenses, a la Warren Buffett. In light of lackluster results over the past several quarters, could it have been a hint that the company was being forced to go on the defensive?

In a word, nope.

In the second quarter of 2015, Google earned $6.90 per share on $17.73 billion in revenue. Analysts were only looking for a profit of $6.70 per share of Google stock, however, and though last quarter’s top line missed estimates of $17.79 billion, it was still up 11% compared to the year-ago sales total. Per share earnings were up 15% versus Q2 2014’s bottom line of $6.08 per share.

The market chose to see the glass as mostly-full, rather than as partially-empty, sending Google stock up 12% in after-hours trading Thursday.

2 Key Things GOOGL is Getting Right

Not that Google is only doing two things right, but the two things investors had been worried about — deteriorating advertising profits and pointless spending — are two things owners of Google stock don’t need to worry about much anymore.

Yes, the growth rate of the cost-per-click (or CPC) total was negative … down 11% overall. There’s a major footnote to that metric, however. Had it not been for YouTube, CPCs actually would have been up last quarter.

So is YouTube — one of the core pieces of Google’s advertising machine — a liability?

Quite the opposite, actually. The company is simply selling different kind of ads now. These costs advertisers considerably less than the ad-scheme before, but that’s by design. Though the per-click revenue at YouTube is weakening, total clicks are soaring.

The company is making up for it in volume, and then some. Total clicks were up 18% in the second quarter … a figure largely driven by the 60% increase in YouTube’s traffic.

And, though she didn’t care to add much detail to the comment, CFO Ruth Porat made a point of explaining that though the CPC rate fell, mobile ad CPCs did indeed grow last quarter, and are on pace to catch up with desktop-driven ad CPC rates.

As for expense control, although only on the job since the middle of last quarter, Ruth Porat appears to be doing what she was brought in to do … keep Page from opening the company’s purse strings wider. Total costs were up 10% compared to the second quarter of 2014’s total spending.

It’s a sizable year-over-year increase, but sequentially it’s a step forward. Costs grew 13% in the first quarter on a year-over-year basis, and were up 22% on the final quarter of last year.

It’s a good start, particularly considering Porat has been on the job for only a couple of months.

Bottom Line for Google Stock

One quarter does not make or break a trend, so it may be a little premature to call the Google earnings report for Q2 a definitive turning point for the organization. On the other hand, it’s most definitely a good start to that end, especially with mobile advertising revenue finally starting to get traction.

Even beyond better responses to its mobile ads, however, it just seems like Larry Page has a new point of view about getting back to basics, with newcomer Ruth Porat there to make sure it happens. When Google is focused mostly in its bread-and-butter advertising business, there’s not much that can stand in its way.

Of course, newcomers may want to wait for GOOGL to cool off a bit following Thursday evenings post-close jump.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/google-stock-looking-good-company-gets-back-basics/.

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