CNBC.com Google Earnings

Google reports its third quarter earnings Thursday and despite the economic morass on Wall Street, the company seems immune to the issues. The question now is whether its head is in the sand, or if it is truly weathering the blistering, stock market sandstorm.

CEO Eric Schmidt's comments just two days after Lehman's collapse that "the drama is in New York, not here," might come back to bite him if Google

GOOG loading...

Quote  |  Chart  |  News  |  Profile

[GOOG  Loading...      ()   ] does anything less than beat expectations. But remember, this is a company that stresses the long term outlook, eschews the day-to-day stock price vagaries, keeps its head down and keeps plugging away. I have written before that Google's advertising efficiencies and the way it generates revenue, not just for itself but for its client customers, makes its exposure to a recession far less dire than say, rival Yahoo,

YHOO loading...

Quote  |  Chart  |  News  |  Profile

[YHOO  Loading...      ()   ] or even Microsoft

MSFT loading...

Quote  |  Chart  |  News  |  Profile

[MSFT  Loading...      ()   ]for that matter.

Still, that hasn't stopped the bears from having their way with this company, and some analysts will say, for good reason. Google shares were shellacked last quarter, down 24 percent, and off 45 percent so far this year.

Analysts are looking for $4.79 a share on $4.05 billion and remember, Google doesn't provide guidance. As usual, Citi's Mark Mahaney offers up a useful cheat sheet: Less than $4 billion in revenue would be bad, beating the $4.05 billion would be good. Less than $1.93 billion in non-GAAP operating income would be bad; more than the consensus $1.96 billion would be positive. Less than 47.7 percent in operating margin would be negative; more than the consensus 48.4 percent would be good. Less than $4.70 in non-GAAP EPS would be bad; beating consensus would be good.

Other key metrics: Mahaney's looking for year-over-year paid click growth of between 15 percent and 19 percent. Google's web site gross revenue should come in between $3.64 billion and $3.7 billion. North American revenue should grow between 2 percent and 4 percent; Network Sites gross revenue between $1.7 and $1.74 billion. And key metric I always look at: headcount. Mahaney says more than 800 new hires would be bad. He's expecting between 450 and 800 additional employees hired on the quarter. Fewer than 450 new hires would be viewed positively.

Meantime, there are several negatives worrying investors: A number of reports these last couple of weeks show pretty big slowdowns in online advertising, and it's a trend this market research suggests will get worse before it gets better. RBC Capital thinks those trends began to develop during the third quarter and not since, and that suggests that Google could miss expectations even though the report concedes that search "is holding up better than other forms of online advertising." Google's also going to have some currency issues. Only recently did Google start to see more than half its business come from outside the United States and it was reaping the rewards of a weak US dollar. American Technology Research says a stronger dollar will cost Google about $110 million in revenue during the third quarter and about $260 million in the current quarter. And one other negative: it's postponed its alliance with rival Yahoo to give the US Justice Department more time to examine anti-trust concerns.

• Earnings Central
• Wien: Stock Market Will End Year Higher Than Today

That said, Google, T-mobile and HTC did unveil the new g1 smart phone running Google's Android operating system and preliminary sales data suggests the device is doing well. Not a major money maker in the short term, but maybe a key revenue driver in the future as Google goes more mobile. And read these analyst reports closely: I'm seeing over and over again that there's a slowdown in net advertising, but that Google won't be bitten as badly as others, that the company is holding up better than others, that Google's best of breed status may serve it well even as the company fights the law of large numbers and its growth begins to slow. Citi's Mark Mahaney says, "As a leading ad company, Google would be impacted by a severe recession even though there is clear evidence that search advertising has been very economically resilient." (The firm still maintains a $590 target on Google.)

Google's got some hand-holding to do when it reports. But that best of breed status--and its near total market dominance--still make Google, at these prices with its paltry, forward P/E of 15x, a compelling a long-term play no matter what the company might report tomorrow.

• Intel Underwhelms--But That's OK, Really

Questions?  Comments? 

Tools:

PrintEmail Del.icio.us Digg It

Previous PostBack to Main Page