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Google Earnings Preview: Growing out of the "hole" at $450?

GOOGLE (GOOG)

Combine the dominant web search franchise with an amazingly successful advertising model and you have the core of Google. The company has thrived by building on that base.

Reports Q1 earnings Thursday 4/17 at approx. 4p ET. Conference call at 430p ET.

Google Headquarters
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Google Headquarters

WHAT WILL MOVE THE STOCK:

WHERE'S THE GROWTH? - Most companies would kill to have growth numbers like Google's. The problem is Google investors are used to, and more importantly, have priced in dizzying increases in sales and profits. There are lots of well-reasoned arguments for why Google shares should be higher, but many of them were there a couple months ago when the stock was $100, $200 or even $300 higher. So...

HOW DO YOU RESTORE CONFIDENCE? - If Google shares are "cheap" and analysts are correct in their $650 price target over the next twelve months (see factoids below), what will it take to get people back into the stock? Watch the post-earnings analysis for statements of restored confidence in Google or... another round of capitulation if the results disappoint.

TIC TAC DOUGH - This is one of the traps one has to avoid while reading earnings: exclude Traffic Acquisition Costs (TAC) from Google's gross revenues figure. TAC is the money Google pays others to drive people to its website. The vast majority of (perhaps all) analysts exclude it, you should too. Revenue estimates below exclude TAC.

READ IT TWICE - This ain't simple, the way Google makes money on the Interweb. Last quarter Google shares got hammered on reports that fewer people were clicking on ads. It took a while for people to figure out that Google had changed/improved the way it counted click-throughs.

MARKET SHARE - ComScore's latest monthly tally of websearches showed Google grew its market share to 55%. But... the number of domestic web searches grew a measly 3% since last March. Also, the fraction of Google searches with a paid ad fell 7%. Is Google maintaining its dominance? Can the profits be there if paid searches are weakening?

ECONOMY - Is e-commerce getting hit by the weakening economy? Last quarter, Google said they hadn't seen any impact. What about now? Yesterday, eBay raised its 2008 guidance but said it saw signs of sales weakness at the end of Q1.

SHINY, COOL, NEW THINGS - What has Google come up with now? Any news on the Google phone? What about new uses for cloud computing?

GUIDANCE - Google doesn't give specific guidance on revenues or earnings. However, Google has made plenty of comments on the state of the company's business and the overall economy. Also...

HIRINGS - How many employees did Google add in Q1? The company regularly reports this figure and analysts watch it for the impact on costs.Our Tech reporter Jim Goldman tells me expectations are for 2,500 new hires with 1,200 of those coming from the DoubleClick deal.

GOOGLE GOLDMAN, FAST MONEY - More like Jim Goldman on Google. See what our Technology reporter Jim Goldman has to say about Google. The Fast Money team also chimed in on this afternoon's earnings report.

ESTIMATES:

Q1 Estimates: EPS up 23% to $4.52, revenues up 42% to $3.608 billion*

Q2 Estimates: EPS up 30% to $4.64, revenues up 39% to $3.798 billion*

FY 08 Estimates: EPS up 25% to $19.54, revenues up 36% to $15.885 billion*

*All revenue estimates exclude TAC (Traffic Acquisition Costs)

Source: Thomson Financial

Year-ago actuals: Q1 EPS $3.68, Rev. $2.539 billion

FACTOIDS:

NOT MUCH FRESH OPTIMISM... - It's been more than a month and a half since a major analyst raised EPS estimates for either Q1 or FY08. In the same time at least ten analysts have lowered their forecast for each period.

... AND THE SHARE PRICE SHOWS IT - Since Feb. 1 (the day after the Q4 earnings release), GOOG's share price has fallen about 12%. It is down 39% from its high in November.

BUT THERE'S STILL FAITH - Analysts' price targets have also been falling, but the consensus is still looking for Google shares to top $650 in the next year. That would require a jump of more than 40% from current levels.

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