Google Stock Is Growing Up Fast (GOOG, GOOGL)

GOOG might be on the way to becoming a stodgy tech giant

By Alyssa Oursler, InvestorPlace Contributor

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Everyone has those moments where a random event makes them realize how much time has passed and how old they are (relatively speaking). For example, I was talking to my friends about mix CDs the other day — and some of the younger members of the group just stared at us blankly.

Google_Acquires_Zync_To_Bring_Visual_Effects_Rendering_To_Its_Cloud_Platform.jpgAnother example: the recent Google (GOOG, GOOGL) earnings report. Both the results and investors’ reaction to it are more proof at just how much Google has grown up.

I first pointed to this fact when noting that Google stock and Apple (AAPL) were both transitioning from growth to value, as told by their reasonable P/E ratios — a rarity for most tech stocks.

They grow up so fast! I remember when Google was just a little startup. But now it’s posting Q2 earnings of $6.99 per share, besting the consensus of $6.70 per share and breaking a six-quarter streak of earnings misses. That beat came as revenue expanded by 11%, also topping analysts expectations.

Investors celebrated on Friday to say the least, with shares closing a smashing 16% higher by day’s end and helping carry the Nasdaq to another new high.

Google Stock Is Looking Older, Wiser

So why do all these things suggest that Google’s getting a bit grey?

For starters, let’s compare this revenue growth to that of past quarters. Sure, an 11% year-over-year improvement isn’t anything to sneeze at and sounds nice in headlines. But this is one of Silicon Valley’s biggest and brightest stars we’re talking about … and one that has quite the track record of revenue expansion.

During the same quarter last year, revenue improved by 22% year-over-year. Some basic math: That means the growth rate was actually slashed in half … but still managed to be fantastic news for the company.

Zooming out a bit more, consider that in Q2 of 2013, revenue grew by 19% year-over-year. In Q2 of 2012, revenue grew by 35% year-over-year. In 2011, revenue grow by 32% and in 2010, by 24%. The last time Q2 revenue came in this low was in the heart of the recession, where revenue — for obvious reasons — barely moved higher at all.

Of course, investors know that organic growth isn’t cutting it anymore for Google, as the other main catalyst for cheering was the fact that Google’s new CFO Ruth Porat has been reining in spending, including holding back hiring and being a bit more practical about what “moonshot” projects company goes after.

That’s the equivalent of a once-irresponsible young adult getting excited about receiving 401(k) paperwork in the mail — something that happened to me recently and that made me feel pretty darn old and boring. Heck, just a few years ago, my Friday nights consisted of … I don’t know … going out as opposed to writing articles about maturing tech stocks.

Google was partying more last year, too — and investors were applauding it. While the overall year was rocky for Google stock, shares moved higher after just about every acquisition (as seen in this timeline), including ones related to artificial intelligence and solar-powered drones. Deutsche Bank titled its research note about this year’s budget-focused Google earnings: “Dawn of a new era? Kinda feels like it.”

To be fair, Google still does have plenty of kick in its step (and so do I, I swear!). For the full year, revenue is expected to grow by 13% (which is decent, if not exactly spectacular), while the 16% annualized long-term growth rate on tap is solid regardless of whether its from cost-cutting or sales growth.

Put another way, it’s not like growing up and getting a bit more focused or serious with budgeting is necessarily a bad thing for Google stock. But it’s still a notable change.

What’s next for Google stock? Following in Apple’s footsteps with a dividend and buybacks … the stock equivalent of a house and kids? You never know … so keep a close eye on the next few earnings reports.

Alyssa Oursler is based in San Francisco and writes about technology, investing, gender and entrepreneurship. Her work has appeared on Business Insider, MSN Money and more. You can follow her on Twitter here or check out her personal site here. As of this writing, she 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-goog-growing-up/.

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