Tech Check

Google Fuels the Tech Fire


The amazing thing about Google ahead of its earnings tonight is the lack of humility.

Google Headquarters

Maybe it's not such a surprise at a company where hubris typically supplants humility, but you'd think in the current climate on Wall Street where under-promising and over-delivering is rewarded so handsomely, that Google would do its part to keep expectations in check.

Not the case.

CEO Eric Schmidt has made no secret of the ad-spending recovery that Google is tracking. More recently, the splashy announcement with Verizon and Google's Android mobile operating system generated lots of headlines, with Google suggesting dozens of handsets using its software will be out by year's end. Then there was the potential of Android coming to AT&T, first with Ralph de la Vega telling me his company had reviewed the OS, liked it, and would be supporting it; then hours later, rumors that Dell would be introducing its first US smart phone, running Android, available on AT&T some time next year.

Oh, and then there's the ongoing rumors that Google's YouTube was on the verge of finally becoming EBITDA positive.

All these components in the Google story lead me to believe that this company might have finally re-captured its mojo. Its stock certainly seems to reflect it: These shares, before today anyway, seemed to be hitting new 52-week highs daily. And like a forest fire creating its own wind, and therefore its own energy, the higher Google shares climb, the higher Wall Street's expectations become, with several targets now well over $600 a share. Earlier this week, FBR Capital raised its target to $660 from $535.

Mark Mahaney at Citi, one of the Street's most thoughtful analysts on the issue, isn't as optimistic.

He expects $4.25 billion in net revenue and $5.35 a share. Consensus is $4.23 billion and $5.40. While he reiterates his "Buy" on the shares, and $580 target, as well as the long-term outlook as "attractive," he says the Q3 fundamentals remain mixed. That's mostly because Q2 was so problematic for Google. If conventional wisdom suggests Q2 was the trough, then Q3 should show modest recovery and the outlook remains positive because capex and personnel spending is finally under control, paid click growth is stable, and mobile momentum is building, he says.

There were also concerns that Google would face increased competition from the likes of Microsoft and Yahoo , now that the two had finally signed their collaborative deal. While Bing did well its first few months, there are signs that its penetration might have begun to slow. Microsoft CEO Steve Ballmer has always maintained that its search engine Bing was a "long term story" and that we shouldn't be focused on month-to-month market gains, but I think there was some optimism that Microsoft and Yahoo working together would lead to more of a threat to Google. And it simply hasn't yet materialized.

Just yesterday, comScore reported that Google continues to blow away the competition as, leading US core web search rankings in July, August and September, hosting 9 billion searches, seeing a slight increase in its market share from July to August, but flat from August to September.

Some other issues to watch for on the conference call: What Eric Schmidt has to say about growth in the mobile sector, any commentary about ad spending momentum, whether he addresses his decision to leave Apple's board because of the ongoing investigation by the FTC, and a similar decision by former Genentech CEO Arthur Levinson to leave Google's board in favor of Apple's . Google is facing increased government scrutiny amid increasing tensions between the company and Apple as the two find themselves in more direct competition in things like software, operating systems and mobile. Anything on any of those fronts will be newsworthy.

This should be an interesting report. Intel started this tech rally big time earlier this week and helped drive the Dow over 10,000. Google and IBM could go a long way toward keeping the Dow above that level.

Questions?  Comments?