Investors and traders were clearly impressed with Google’s third quarter earnings report on Friday sending the stock up 3.8% on 3 times average volume (for the past three months). Google (GOOG) is now up a whopping 79% for the year and is at 15-month highs.
There are of course many things to like about GOOG’s results, performance, and execution. I like to track GOOG’s net revenue metrics (see chart below) where I measure net revenue as gross revenue subtracted by traffic acquisition costs (TAC). These data are easily obtained from each of GOOG’s quarterly earnings reports. What strikes me is that, finally, GOOG’s year-over-year (YoY) net revenue growth rate has increased sequentially, from 4% in the second quarter to 8% in the third quarter. This is the first quarter-over-quarter increase in three years. If this blip represents a sustained bottom in the growth rate, GOOG’s stock could have a lot more upside from even these lofty levels.
As GOOG’s revenue growth rate has consistently declined, GOOG has also slammed the brakes on the growth of its workforce. This past quarter, GOOG shrunk its worldwide workforce for the first time as a public company, and probably ever. This shrinkage in the workforce seems to have finally shifted GOOG’s net revenue per employee upward (see chart below). This ratio has been relatively steady between $189K – 209K for the past three years. Net revenue per employee is now at $223K, a four-year high. If this efficiency continues to improve, GOOG’s stock will receive even more support.
Partially based on these results, I went long GOOG with a Nov 570/580 call spread. More details on the thinking here in another post.
In the meantime, be careful out there!
Full disclosure: long GOOG call spread.
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