Five Ways That Google's Growth Is Sputtering Like Apple's

Image via CrunchBase

Yesterday after the close, Google (GOOG) reported earnings of $9.56 per share, excluding items, compared to consensus of $10.78. Revenues came at $14.11 billion compared to the consensus forecast of $14.40 billion. Operating margins came at 28% compared to 33% for the same quarter in 2012.

As I listened to Google's conference call, it struck me that there were at least five eerie similarities between Google now and Apple (APPL) when it was trading around $700.

String Of Top Line Misses

This is the seventh top line miss from Google. Apple had a string of top line misses before the stock price topped around $700. In my experience, it's been more instructive to pay attention to the top line as a business barometer for technology companies. There has to be reasonable assurance that growth rate momentum, not just absolute growth rate, will continue in the future.

Decline In The Key Metric

The key metric for Google is cost per click (CPC). For the quarter, CPC for Google declined 6% year-over-year. Even though Google is in many businesses, Google's main bread and butter is still search advertising, hence the importance of this metric.

When Apple was reaching $700, the most important metric in my model for Apple was the momentum of growth of iPhone sales. This metric had declined prior to the top in the stock. Even though Apple has many product lines, Apple's main bread and butter is iPhone.

The '$1,000 Target Target '

The median target of 38 analysts on Google is $998 and the high target is $1,175. Many firms, including Bank of America /Merrill Lynch, Morgan Stanley , JP Morgan, CLSA, RW Baird, and Argus have recently raised their targets on Google.

When Apple was reaching $700, brokers were tripping over themselves to raise their targets near or over $1,000. One commentator even published a target of $1,650 per share.

Stock Run Into Earnings

Going into earnings, Google stock had run from a swing low of about $760 on April 19, 2013 to about $928 high. This indicates that there was optimism among investors about earnings. Apple experienced a similar run and optimism going into earnings just prior to the $700 mark.

Emerging Market Issues

The big potential growth for both Google and Apple is in emerging markets. In the case of Google, CPC in emerging markets is considerably lower than in the developed markets.