CNBC.com

I was going to hold off on a Google

GOOG loading...

Quote  |  Chart  |  News  |  Profile

[GOOG  Loading...      ()   ] earnings preview since it's more than a week away, but after watching the company's shares fall, and fall, and fall some more, it seems like today is a better day to do it.

Google stock is on the ropes. I know, seems counter-intuitive to say a stock trading at $538 is "on the ropes," especially when over the past 52 weeks it traded as low as $437, but you get characterizations like this when it also hit $747 in the same 52 weeks. That's a massive range, even for a company like Google. And a significant concern when you consider that Google hit that $747 high in early November.

Do the math: We're talking better than $40 billion in market cap wiped away in a very short period of time. UBS is out with a report today saying it's cautious on Google's earnings next week, but still likes the name long-term.

Citigroup is expecting Google to report over $3.4 billion in revenue and about $4.40 in earnings per share this quarter. That's generally in line with the Street, though there may be slight improvements in EPS thanks to foreign exchange and some margin improvements. And that might be the problem: reasonable estimates that Google is expected to meet. Not blow past; not miss; but an expectation that Google will report right in line. UBS agrees, but goes a step further, saying if the company can't beat on revenue, margins may slide more than investors are expecting.

I've written recently about the overhangs on Google shares surrounding the multi-billion dollar bid and build out of the wireless spread spectrum auction that begins next week. We won't have any clarity on just how big a bill Google faces until March when the auction concludes.

Yet, as I have written, I only see positives connected to this so-called "overhang:" Either Google wins and has to shell out billions to jump into the wireless business, which offers Google some enormous potential new revenue streams--billions Google can actually afford. Or, it loses the auction, doesn't have to spend those billions, and comes up with new ways to generate revenue.

Another positive that makes Google's sell-off a little bit of a surprise: Google might be the most insulated, big-name net stock, to any recession fears. It sure seems like a better play than consumer-dependent net stocks like Yahoo

YHOO loading...

Quote  |  Chart  |  News  |  Profile

[YHOO  Loading...      ()   ] , eBay

EBAY loading...

Quote  |  Chart  |  News  |  Profile

[EBAY  Loading...      ()   ]  and Amazon

AMZN loading...

Quote  |  Chart  |  News  |  Profile

[AMZN  Loading...      ()   ] . Google, free to consumers, offers advertisers "performance-based" marketing; advertisers only pay per lead, meaning the revenue coming into Google is likely the last thing companies would cut in times of recession. That's good for Google no matter which way the economy goes.

Even Sanford Bernstein is expecting good news, raising EPS estimates today by a nickel, from $4.39 to $4.44. And compare Google's P/E to Yahoo's? Google's at 25 times next year's earnings; Yahoo, now at a 4-year low, is at 35 times next year's earnings. Make sense of that?

But that's little solace to investors licking their wounds today, watching another steep Google slide. For next week, the Street is at $4.43, up 39 percent from the year ago period. Analysts are looking for $3.44 billion in revenue, which would be a 54 percent jump from the same quarter a year ago. Both numbers are up sharply, yet the stock is trading at a 3-month low. Of course, the Street will be paying very close attention to costs, which seemed under control last quarter, despite another massive hiring binge at the company.

It's a long week between today and Google's report a week from tomorrow; but plenty of investors I'm talking to today are scratching their heads, mired in confusion.

Questions?  Comments?