Oppenheimer & Co.’s Jason Helfstein today opines that Google‘s (GOOG) entry into selling its own tablet computer hardware, as opposed to merely licensing its Android operating system to Samsung Electronics�(005930KS) and others, is a smart move, but that�”the company will see margin dilution from these costs, as well as higher traffic acquisition costs (TAC) as the majority of tablet usage and mobile commerce is generated from iOS devices,” referring to Apple‘s (AAPL) operating system for the iPhone and iPad.
Helfstein, who has a “Perform” rating on Google shares, and a $715 price target, writes that the company has been subsidizing tablet computers like the “Nexus 7,” of which he thinks the company sold 3.4 million in Q4 at an average price of $136.
But in addition to fronting the cost of the hardware, Google must pay more money to acquire traffic, its so-called TAC, because Apple’s iOS software and the devices it runs on generate the lion’s share of e-commerce activity.
That reduces Google’s overall profitability:
Industry reports suggest that the majority of mobile shopping was done on iOS devices (77% according to IBM Digital Analytics), suggesting that GOOG’s TAC increased in 4Q, as eCommerce drives paid search traffic. Increasing 4QE and ’13E TAC by 29 bps and 33 bps.
As a consequence of carrying higher cost of goods, Helfstein cut his estimate for this quarter to $9.62 billion in “net revenue,” and an Ebitda margin of 40%, resulting in EPS of $9.62, which is down from his prior estimate for $10.15 billion, 44%, and $11.20.
Hellsten also cut this year’s estimate to $41.46 billion, 42% Ebitda margin, and $44.10 in EPS from a prior $42.57 billion, 42.6%, and $47.56.
Google shares today are up $13.32, or 1.9%, at $720.70.
No comments:
Post a Comment