On Thursday, Google announced fantastic third-quarter results. We had been expecting a strong showing and are maintaining our $700+ per share fair value estimate on the company. Google is trading up nearly 7% after hours. Our detailed financial report on Google can be found here.
Revenue growth accelerated to a whopping 33% thanks to nearly a 40% increase in Sites revenue, which represents 69% of the business. Network revenue (AdSense) – or revenue generated by Google’s partner sites – jumped 18% and represented roughly 27% of consolidated revenue in the quarter. Aggregate paid clicks increased 28% over the third quarter of 2010 and 13% sequentially – solid performance. We were also pleased with the firm’s mobile business (Android), which now powers roughly 190 million devices (up from under 140 million mid-year).
We were also very impressed with the performance of Google+ (“Google Plus”) in the quarter, and, for the first time ever in our recollection, we saw an exclamation point in a company’s earnings release. Perhaps needless to reiterate, management is extremely optimistic about the new social-networking endeavor:
“…Google+ is now open to everyone and we just passed the 40 million user mark (Facebook has 800 million). People are flocking into Google+ at an incredible rate and we are just getting started!”
Google’s non-GAAP operating income advanced 24%, while non-GAAP net income jumped over 29% during the period. Non-GAAP EPS rose nearly 28%, to $9.72 from $7.64 in the prior-year quarter. The bottom line blew by consensus estimates (by almost a $1 per share), and we expect the Street to continue to migrate up to our long-term forecasts. Google continues to pull in cash at a rapid rate, with net cash from operating activities jumping nearly 37% in the period, to nearly $4 billion. Free cash flow conversion was fantastic as well, with the company raking in nearly $3.3 billion, or roughly 34% of revenues in the quarter – among the best in our coverage universe.
Google remains a legitimate contender against Apple (AAPL) in mobile and Facebook in social media, and will continue to hurt Yahoo (YHOO) and AOL in the online ad business. We’re waiting for a pull back to add the firm to the portfolio in our Best Ideas Newsletter.