Schmidt Dumps Google Inc (GOOG) Stock. Is It Still a Buy?

In the fourth quarter, TAC rose 11% sequentially and 3% year over year. Essentially, Google’s strong revenue growth was aided by (among others) Apple, which Google had to pay for the volume of traffic sent to its site. Meanwhile, Apple has been working hard to remove from it IOS any possible advantage that it has given Google, including YouTube and maps.

At the same time, Apple has been incorporating more Facebook utilities in its devices as both companies are trying to leverage each other to keep their users from venturing outside of their platforms. In other words, it appears to be a concerted effort to weaken Google. But is it working? Google understands what’s going on. And the company’s strategic planning and execution continues to show that it remains focused on one thing — increasing shareholder value. But at what cost?

Case in point: It was glaring that operating expenses surged 42% to almost $5 billion. The good news is that profitability remains strong as net income jumped almost 7% year over year to $2.89 billion. But margins were anything but clear. It’s no criticism on the company, but it’s very tricky trying to decipher Google’s earnings due to its various business segments.

For instance, despite the 6% increase in operating income, operating margin shifted lower by more than 6%. Essentially, Google’s “all inclusive” revenue mix is mainly the cause of the drop. This may or may not be significant since it includes revenue from Motorola, Google Play and YouTube. This might validate some of the criticism among analysts. But does it warrant selling the stock?

There’s still plenty to fix
It’s hard to disparage a company of Google’s size that is still posting record revenue and profits. But as great as this quarter was, it also raised several questions. For example, is the decline in margin a one-time thing, or is it a sign of some underlying weakness in the company’s competitive leverage? Also, how much of the 6% drop in the click-through rate is being caused by Facebook, or was it a byproduct of what has been a tough macro climate for advertisers?

In the meantime, the company is in great hands. Whether or not these concerns have influenced the timing of Schmidt’s stock sales is immaterial. Plus, with the improving situation regarding Motorola, Google’s future remains as bright as ever. I would be a buyer here on this weakness. Investors should expect more good things to come from Google in 2013 and beyond.

The article Schmidt Dumps Google Stock. Is It Still a Buy? originally appeared on Fool.com and is written by Richard Saintvilus.

Fool contributor Richard Saintvilus owns shares of Apple. The Motley Fool recommends Apple, Facebook, and Google. The Motley Fool owns shares of Apple, Facebook, Google, and Microsoft.

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