Shares of Google (GOOG) blasted off Wednesday morning after the search engine behemoth reported a quarter that was short on numerical specificity but strong where it counted. Officially, Google reported non-GAAP EPS of $10.65 versus Street estimates of $10.42, but the numbers were so clouded by charges that it hardly mattered.
In the attached clip, Yahoo! Finance Sr. columnist Michael Santoli says the most bullish part of Google's quarter was a slowing in the rate of the decline in cost per click, or what the company makes from advertisers. An 8% decline in Q3 slowed to a 4% drop in Q4. That matters because search is Google's bread and butter. As long as the company is making money reliably from ad clicks, Google can afford to do almost anything it wants.
"To me, as a stock it still really works here," Santoli says. "It's cheaper than Visa (V), it's cheaper than eBay (EBAY) on a cash-flow basis." With that kind of cash coming in, Google has the wherewithal to do an acquisition like that of Motorola Mobile. Where smaller companies would have had to take on enormous debt to pay more than $12 billion for what amounts to a bunch of patents, a left-for-dead handset unit and unwanted cable boxes, Google was able to cut the check and focus on maximizing the long-term payoff.
Investors are growing increasingly comfortable with the notion that Google's management can be trusted to invest shareholder money wisely. The company is picking away at Apple's (AAPL) dominance in apps and handsets even as it retains a dominant position in the mobile ad market. At this stage of the mobile ad war, investors couldn't ask for more.
The quarter wasn't perfect, but it didn't contain any of the wildly unpleasant surprises seen in October. With expectations subdued, great cash flows and strategic progress were more than enough justification for new money to come in and drive shares higher.
[Note: Jeff Macke is long shares of Google.]