Google Rises To Dizzying Heights

Google Inc. (NASDAQ: GOOG) announced the quarterly earnings yesterday after market close. Google blew away the earnings, topped the analyst estimates, and importantly, shook off the investor worries about Google's revenue and earnings growth. There were many doubts going into Google's earnings announcement - whether Google can sustain the market share, whether AdWords is producing enough clicks, whether Google can continue the torrid growth. Google erased these doubts in one swift announcement, and investors who were on the sidelines rejoined Google's party.

Google Inc. (NASDAQ: GOOG) is one of the Top 20 Innovators of The Innovation Index. Innovation Index Group has a BUY recommendation for Google with Q4, 2008 price target between $675 to $745.

Google shares are up 21.40% in one day at $545.90 currently. Google shares are still down 22% for the year after today's run up.

What were the earnings specifics?

"Google reported revenues of $5.19 billion for the quarter ended March 31, 2008, an increase of 42% compared to the first quarter of 2007 and an increase of 7% compared to the fourth quarter of 2007.

GAAP operating income for the first quarter of 2008 was $1.55 billion, or 30% of revenues. This compares to GAAP operating income of $1.44 billion, or 30% of revenues, in the fourth quarter of 2007.

GAAP net income for the first quarter of 2008 was $1.31 billion as compared to $1.21 billion in the fourth quarter of 2007.

Non-GAAP EPS in the first quarter of 2008 was $4.84, compared to $4.43 in the fourth quarter of 2007."

Which Google properties showed strength?

Google Sites Revenues - Google-owned sites generated revenues of $3.40 billion, or 66% of total revenues, in the first quarter of 2008. This represents a 49% increase over first quarter 2007 revenues of $2.28 billion and a 9% increase over fourth quarter 2007 revenues of $3.12 billion.

Google Network Revenues - Google’s partner sites generated revenues, through AdSense programs, of $1.69 billion, or 33% of total revenues, in the first quarter of 2008.

International Revenues - Revenues from outside of the United States totaled $2.65 billion, representing 51% of total revenues in the first quarter of 2008, compared to 47% in the first quarter of 2007 and 48% in the fourth quarter of 2007.

Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 20% over the first quarter of 2007 and approximately 4% over the fourth quarter of 2007.

Google performed rather well globally, and the all important Paid Clicks continued the upward growth with a 4% increase from the last quarter of 2007. This was perhaps the measure that most investors were worried about. Ultimately, a growth in search market share should translate into an equitable growth in Paid Clicks. The Paid Clicks growth does represent a 56% drop from previous quarter's growth of 9% (Google Paid Clicks had grown 9% in last quarter of 2007 from the third quarter of 2007). Is the Google Paid Clicks growth slowing? Would Google Paid Clicks go back to greater than 5% growth quarter over quarter once Google begins growing Search market share and make the Paid Clicks engine even more efficient?

Bottomline:

Google delivered. Google also consummated the DoubleClick acquisition in March 2008. The Top 20 Innovators of the The Innovation Index have been delivering on their earnings - IBM, eBay, Intel, Research In Motion, Nike, Best Buy have all met or beat their quarterly earnings. Whereas the market was upbeat after their earnings announcements, the market is exuberant today. The major U.S. indices are up about 2% today. Google has quenched the investor sentiments today, and if the overall U.S. economy improves in the 2nd half of 2008, watch out! Can Google be a $1,000 stock in 2009? If Google continues this growth trajectory, why not? Only time will tell.

About Innovation Index Group:

Innovation Index Group, Inc. is a new investment management company focused on systematically identifying, tracking and investing in the most innovative publicly traded companies in North America – collectively called the Innovation Index. We have developed the Innovation Index Fund, LLC as our first vehicle to invest in the Innovation Index. Over the past six years, the Innovation Index has generated a gross average annual return of 40%.

Innovation Index Group, Inc. and Innovation Index Fund LLC are registered California Corporations, and member of the Irvine Chamber of Commerce in Orange County. Further, Innovation Index Fund LLC is a private placement investment partnership organized under the California state regulations.

The Innovation Index Reports:

Invest in The Innovation Index - Innovation Index Fund tracks The Innovation Index
The Innovation Index closes 2007 at 66% - 2007 Annual Report on the Innovation Index
Top 50 Innovative Companies in the world - 2007 Report on Top 50 Innovative Companies
Annual Report - Chapter One - Total Innovation Activity - 2006 Annual Report One
Annual Report - Chapter Two - The Top Innovator - 2006 Annual Report Two
Annual Report - Chapter Three - The Innovation Insights - 2006 Annual Report Insights
Innovation and Stock Performance Correlation - The Innovation Index and Stock Performance

About The Innovation Index

The Innovation Index introduced in December 2006 is a weighted stock price index of the top 20 Innovators in North America.

The Innovation Index returned 66% in 2007, and returned 174% over the previous five years (2002-2006). This assumes equal investment in each stock of The Innovation Index as of December 31, 2001. An average of $100 invested in The Innovation Index on December 31, 2001 returned $454 as of December 31, 2007. By comparison, $100 invested in S & P 500 returned 28% or $129, $100 invested in NASDAQ returned 34% or $136, and $100 invested in the Dow Jones Index returned 30% or $131 through December 31, 2007. The Innovation Index beats the S & P 500, NASDAQ and Dow Jones Index by more than seven times over the past six years.*

Alphabetical list of the Top 20 Innovators of The Innovation Index for 2008 and their stock ticker symbols:

3M Company - (NYSE: MMM)
Amazon.com, Inc. - (NASDAQ: AMZN)
America Movil - (NYSE: AMX)
Apple Inc. - (NASDAQ: AAPL)
AT&T Inc. - (NYSE: T)
Best Buy Co., Inc. - (NYSE: BBY)
Cisco Systems, Inc. - (NASDAQ: CSCO)
Costco Wholesale Corporation - (NASDAQ: COST)
eBay Inc. - (NASDAQ: EBAY)
General Electric Co. - (NYSE: GE)
Google Inc. - (NASDAQ: GOOG)
Hewlett-Packard Co. - (NYSE: HPQ)
Intel Corporation - (NYSE: INTC)
International Business Machines Corp. - (NYSE: IBM)
Merck & Co., Inc. - (NYSE: MRK)
McDonald's Corporation (NYSE: MCD)
Microsoft Corporation - (NASDAQ: MSFT)
NIKE, Inc. - (NYSE: NKE)
Research In Motion Limited - (NASDAQ: RIMM)
The Proctor & Gamble Company - (NYSE: PG)

The Innovation Index will analyze the positions and standings of the Top 20 Innovators at the end of each year. For 2008, there will be no further changes in The Innovation Index.

Disclaimer: The Innovation Index Group, Inc. invests in the stocks comprising The Innovation Index.
*Past Performance Does Not Guarantee Future Results

References:
Google Press Release

Google's New Search - Step in the right direction - Still some ways to go

Google today announced it's new search technology aka Universal Search:

Google Begins Move to Universal Search

Google Introduces New Search Features and Unveils New Homepage Design

MOUNTAIN VIEW, Calif. (May 16, 2007) – Google Inc. (NASDAQ: GOOG) today announced its critical first steps toward a universal search model that will offer users a more integrated and comprehensive way to search for and view information online...

"Our focus has always been making our users' search experience as simple and straightforward as possible," said Marissa Mayer, vice president of search products and user experience at Google. "The ultimate goal of universal search is to break down the silos of information that exist on the web and provide the very best answer every time a user enters a query. While we still have a long way to go, today's announcements are a big step in that direction."
....
"Google has continued to concentrate on improving the quality of search," said Udi Manber, vice president of engineering at Google. "The level and speed of search innovation at Google has increased. Most of this innovation addresses basic ranking algorithms and is often not obvious to users. Users just see more accurate results, more often, in more languages, which is our primary goal."

New Navigation Features

New dynamically generated navigation links have been added above the search results to suggest additional information that is relevant to a user's query. .....

I tried out Google Search today on various queries regarding "baseball" to understand the differences and whether it yields better, "integrated and comprehensive" results.

Here were some results for various queries starting with "baseball":


In this particular query for "baseball", Google Search is confusing, since the user is inundated with two sets of navigation links: the always present static links at the top, and the dynamically generated links below the search. As an end user, which link should I click on if I want more information? Images link in the top static bar? or Images link shown under the dynamic bar? News link in the top static bar? or News link in the dynamic bar? I think Google needs to fix this or represent the dynamic bar links in a different manner so as to indicate that there is interesting information available. For now, whether you click on the Images link in the static bar or in the dynamic bar, the results are the same. Also, the overall query results for "baseball" did not show anything more interesting than what was shown before in the query results (old Search).

The query for "baseball bat" produced better results. It not only showed me the text search results for baseball bat, but also showed me image results for baseball bat which made the results "interesting". In the case of "baseball bat" query, the dynamic links were different: only three links were shown - Web, Images and Products. Again, the Images dynamic link yields the same results as the Images static link. Hence, it is a bit confusing. Another confusing static link at the top was "Gmail" - clicking on Gmail yielded nothing except asking me to sign-up for Gmail. I am thinking that if you are logged in to Gmail, it may perhaps show something different. Either way, the static link for "Gmail" at the top did not provide anything meaningful. The Products dynamic link for "baseball bat" was definitely a plus, since clicking on the Products link yielded the following result:

Now, I was able to find baseball bats available for sale. This made sense. I think Google needs to visually present this better - perhaps embed a couple of Products snapshot on the main page.

I tried one more search: "baseball cap" since I wanted to buy a new baseball cap for my favorite baseball team. However, the results were disappointing: in this instance, the dynamic links shown were only for the Web and Images. And clicking on Images link produced the same results as would have appeared were you to click on the Static Images link. I was hoping to have found the Products dynamic link to find the baseball cap of my favorite team. However, this was not to be. Having said that, the usual Web search does provide links to product sites.

Bottomline:

Google's new search technology is an early effort towards making searching for information better. Google has the right vision of integrating the search across various dimensions of Web, Images, Video, Products, etc. and providing comprehensive results. However, implementing this algorithm for new search, producing the results in parallel, and showing the results in a visually appealing and contextually easy-to-understand manner is going to be key as Google moves forward. Google may also be faced with the problem of what a majority of the user population may be seeking: a simpler answer to their search query. The more sophisticated users may appreciate the comprehensive answer that Google will provide. How would Google know whether the user is a layman user or a sophisticated user? One thing is certain though: Google has the ability to mine the world's information and present it in a contextual setting that is relevant to the user. Google just needs to make sure that in creating a new search, it does not make it confusing for the end user, as this would be huge step backward.

References:

Google is one of the top 20 innovators of The Innovation Index.