Q1 Preview: Don't Know What 'Earnings Beat' Is? Google (GOOG) It!

April 14, 2011 1:24 PM EDT
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Price: $804.61 -0.4%

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    53 Buy, 7 Hold, 2 Sell

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Google, Inc. (Nasdaq: GOOG) shares are modestly higher Thursday heading into the company's first-quarter 2011 earnings report, expected out after the market closes.

Analysts are currently looking for Google to report EPS of $8.13 on revenue (excluding traffic acquisition costs, or TAC) of $6.32 billion. Last quarter the Mountain View, CA-based search giant saw EPS of $8.75 on sales of $6.37 billion, both metrics beating consensus views. Looking back one year, Google reported EPS of $6.76 and revs of $5.06 billion, topping the consensus views calling for EPS of $6.60 and revs of $4.95 billion.

Shares lost 2.9 percent in the quarter and is down nearly 1.8 percent since then.

Google is trading at a forward P/E of 14.4x FY12 EPS estimates, compared with 16.6x for AOL LLC (Nasdaq: AOL) and 17.9x at Yahoo!, Inc. (Nasdaq: YHOO).

Data from Bloomberg has 37 analysts with a Buy on Google, 8 with a Hold, and none suggesting to Sell. The analyst price target average is $736.80, with a high of $800 and low of $625. Shares have traded in a range of $642.96 - $433.63 over the last 52-weeks.

Analyst Summary

  • Kaufman Bros. expects EPS of $7.92 with net revs of $6.2 billion, but the firm sees Google reporting better than that. Kaufman says channel checks have pointed to a 21 - 23 percent increase in U.S. search, with consumers performing more "commercial searches and retailers vying for leads..."

    Kaufman continues: "we expect Google to report 18% paid click growth and 5% CPC growth, higher than our prior estimates of 16% and 4%, respectively, as paid clicks benefit from mobile and U.S. retail, while CPCs remain stronger than expected on consumer recovery."

  • Wedbush expects EPS of $8.17 on revs of $6.376 billion. Wedbush also believes Google will exceed the firm's expectations, given the strong rebound in the search market. Specifically, Wedbush feels "paid clicks were likely as strong as or stronger than in 1Q10 due to the success of Google Instant. We believe Google should report growth in paid clicks of at least 15% YoY. While Cost-per-Click rates fell below our expectations, the decline was less than we expected."

    Additionally, Wedbush notes impressions increased significantly Y/Y, which should offset the seasonal decline in cost-per-impression. Solid results are expected from Android as well.

  • Deutsche Bank is bullish, expecting first-quarter results above the Street. Deutsche Bank is looking for EPS of $7.83. Benefits Google will reap include a recovery in online ad spending and a weaker U.S. dollar, according to the firm.

    Deutsche Bank comments: "The market appears to be overly concerned on the company's abiliity to hit revs [estimates], manage costs and compete against other Internet companies. However, we think the strength in e-commerce activity should bode well for paid search spend in 1Q, while higher CPC categories such as auto and travel continue to show signs of improvement." DB notes that U.S. marketing budgets are recovering in key areas, namely retail, travel, and finance. YouTube is also seeing strong ad demand.

    Regarding the conference call, the firm lists some key topics: "We think that the new CEO (Larry Page) needs to communicate his long-term strategy/direction for Google (with emphasis on new product creation and innovation as well as expansion, not new business models -- payments, commerce, subscriptions, etc). Additionally, we expect investors to focus on the opportunity in the mobile ad market, impact of employee retentation/recruitment and next major areas of usage and rev growth for Google."

  • BGC Partners sees EPS of $8.13 and revs of $6.2 billion. BGC notes, while revenue-per-click has increased for Google, so has cost-per-click; Google is also unlikely to regain lost market share in the U.S. and Europe, while simultaneously having a tough time breaking into China.

    BGC says: "we expect the impact to revenue from the recent search quality initiatives to be an incremental negative. Display & mobile revenue, while growth areas, are approximately only 10% of revenue." Additionally, "While there is a potential for a faster and more nimbler organization as a result of the recent reorganization, the near term result is likely to be increased expenses as each new group ramps up to chase after future revenues."

  • Janco Partners is looking for EPS of $8.37 on revs of $8.13 billion.

    Janco comments: "Media buyer dollars continue to flow from offline to online and the Company’s search product continues to innovate, in our view. Offsetting our enthusiasm somewhat; management reorganization, accelerated compensation strategy and an office building purchase. We believe global online advertising trends will remain positive over the medium term and should directly benefit the Company’s performance. We expect continued sales acceleration from recently illuminated advertising market opportunities in display and mobile."
Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of the release.

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